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Tuesday, 23rd April 2024
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Lack of investment product curbs spending outlays Back  
Marie Hunt on the state of the commercial property market, which has shown a phenomenal 36.8 per cent return in the year to June 1999
T o date in 1999, investment deals in income producing commercial properties in Ireland with values in excess of ?500,000 have exceeded ?376m.

The pace of investment this year has been strong despite a severe shortage of investment product. The overall spend this year will be lower than in 1998 when the level of investment exceeded ?620m. However, there are several substantial deals in the pipeline which will bring the overall investment spend to approximately ?500m. This figure is then likely to be exceeded before the year end. So while there is a lack of investment product in the marketplace the overall spend for 1999 will not be too far behind the 1998 figures.

The overall return from commercial property in the twelve months to June 1999 was a phenomenal 36.8 per cent with the office sector accounting for the highest returns.
The most significant fall in yields has been in the office sector. Prime yields have fallen to 4.75 per cent due to a lack of quality office investment product; a fall of 27 per cent since 1994. As supply diminishes further and rental growth continues we predict this yield to fall to 4.5 per cent by the end of the year. However, a slight increase in interest rates has slowed the fall in yields to some extent.

To date in 1999, 72 per cent or ?273m of the total investment income has been generated from office investments while 13 per cent or ?47.9m was invested in the retail sector. 10 per cent or ?37.9m has been generated from industrial investments while the remaining 5 per cent or ?17.2m has been derived from a combination of other sectors.

In general, lack of supply continues to dominate the market. As a result, rental growth is
a very significant factor of the market. The notable slowdown in sales is purely as
a result of limited re-investment opportunities. Most of the investment in the Dublin market is confined to pre-funded office and industrial developments. Indeed 11 per cent or 54.2 per cent of the total investment spend to date in 1999 consisted of forward funded deal. 18 of the total 62 deals were industrial deals. There were 24 office deals, 13 retail deals and 7 deals in other sectors. There is keen competition for the small amount of investment and funding opportunities that present themselves. As a result of the lack of product, a large number of institutions and private investors are now diverting funds to the UK where yields are better and where there is a good supply of quality investment opportunity available.

It is anticipated that demand for investment product will remain strong for the remainder of the year and that the total spend will not be too far behind 1998 figures.

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