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July 27, 2015

The Abu Dhabi Investment Authority (ADIA) has become the latest source of wealth to invest in Ireland’s recovering economy following reports of a development deal that will boost supply in Dublin’s competitive commercial property market.

The site, which is described in press reports as the ‘Mayfair and Knightsbridge’ of Dublin, was once the most expensive parcel of land ever sold in the city. It was bought by Irish developer Sean Dunne for approximately 380 million euros in 2005 and has planning approval for 490 apartments, a 152-bedroom hotel as well as retail and leisure space.

The development deal, which ADIA is investing in in partnership with local firm Chartered Land, comes as good news amid Dublin’s growing space shortage, particularly in the sought after office market.

“Grade A vacancy space for offices is below 2.5 percent and there’s a huge shortage of larger size space,” said John Moran, CEO, JLL Ireland.

In Dublin this effect has been more extreme than anywhere else in Europe, with the vacancy rate dropping from 19 percent to 8.6 percent over the last 12 months.
While recent figures from JLL show that the Index of Overall Returns in the Irish real estate market is up 32.8 percent over the last 12 months – just 7.8 percent shy of the 2007 peak –  15 consecutive quarters of positive growth has increased demand from both investors and occupiers to unprecedented levels. This is pushing yields down and price per sq ft up.

Money is pouring in from overseas investors, primarily US private equity funds, to back cash-poor local developers.

“Response to the supply shortage has kicked off a new development cycle,” added Moran. “Development finance is coming in and just over half of the project pipeline is pre-let already so we expect no let-up in demand through to 2017.”

Dublin’s unwavering appeal

Underpinning Dublin’s appeal among international investors is the strong demand from corporates who favour the city as a base for European business. In particular, US ‘born on the internet’ firms – Facebook, Google and Twitter – all of which have their EU headquarters in the city. And over 50 percent of the world’s leading financial services firms have a presence in Ireland.

The low corporate tax rate is an undeniable incentive but Dublin also benefits from strong trade ties with the US, a well-educated, native English speaking workforce and a timezone shared with London. Its compact size, too, makes for ease of business: “We’re small and nimble and I always say that Ireland is more like a yacht than a super tanker – if the global economy turns, we can move with it quite quickly,” Moran added.

Testimony to this is the fact that, despite reaching the brink of bankruptcy in 2009, the government announced its exit from the IMF Bailout Programme in 2013 and recovery has shown an upward trajectory ever since. Last year, the real estate market reached record volumes of €4.5 billion.

The retail sector looks especially buoyant in light of increasing consumer spending with annual growth of 7 per cent in volumes of retail sales (CSO Retail Sales Index). ERVs have increased by 8.7 percent although Moran points out that rents halved during the crisis, so this is coming from a low base and there’s significant room for further growth.

As developers break ground on new property projects, Ireland’s upward curve looks set to continue.

John Moran

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