Irish Commercial Property Investors will be on the hunt for ‘green’, ‘white’ and ‘gold’ properties when it comes to selecting future investments, says David Hourihan of Drivers Jonas’ Birmingham office.
Most people in Britain are well aware of the growth the Irish economy has experienced since the early 1990s. Such was the success of the country’s ‘Celtic Tiger’ phenomenon, that visitors ranging from businessmen to politicians, international delegates to academics, from across the globe flocked to the emerald isle in a bid to identify whether the nation’s prosperous economy was the result of exportable economic genius or that elusive luck of the Irish.
For Irish property investors the success of the Irish economy generated huge new levels of wealth and, with limited opportunities available due to the relatively small size of the Irish commercial property investment market, many were forced to diversify their holdings and acquire commercial property investments overseas. The impact of this on international markets was substantial. In the five years between 2002 and 2006 the annual amount of Irish investment in the international commercial property markets surge fivefold from approximately €2 billion to over €10 billion.
It was a halcyon period for the Irish economy but sadly one which did not last. Irish investment abroad came to a grinding halt in late 2007 with the Celtic Tiger unable to wrestle itself from the jaws of the impending credit crunch. The fall in global financial markets swiftly impacted upon the Irish at home with rising job losses seeing the swift evaporation of the once boundless home market sentiment.
In 2008, Irish investors saw for the first time in many years sizeable falls in commercial property values in both the home and neighbouring UK markets. The SCS/IPD Irish Annualised Property Index revealed a drop of 34.4 per cent in total returns during quarter four of 2008. Traditionally the favoured international market for Irish investors, the UK didn’t fare much better, with its equivalent IPD Index reporting a 22.1 percent drop.
In September 2008 the Irish economy was declared officially in recession. October’s €400bn emergency banking legislation to guarantee all Irish deposits failed to stop the downturn and GDP growth for the year slumped to -2.8 per cent. The outlook remains bleak for 2009 with The Economist Intelligence Unit’s CountryData predicting GDP to fall further to -4.8 per cent in 2009 before picking up to -1.4 per cent in 2010. Commercial property values in Ireland are as a result continuing to struggle amid falling confidence at home and uncertainly as to when the global property markets will stabilise.
With such insecurity in the home and international markets, the majority of Irish investors will be far more cautious for the foreseeable future. It is likely that many will follow their tricolour national flag by adopting a ‘Green, White and Gold’ strategy toward managing existing portfolios and acquiring new commercial property investments. Utilising this wary selection strategy, it is probable that Irish investors will be seeking properties that are:
Green: Investors will seek out modern and flexible properties that meet the latest environmental, ecological and Health & Safety standards. Properties with high BREEAM and Energy Performance Certificates ratings are likely to prove the most attractive for long term investment. Older properties will be of less interest, particularly those in need of expensive and protracted refurbishments.
White: Irish Investors will be looking for whiter-than-white investment properties i.e. those which are fully let, ideally on long term leases, to low risk tenants.
With such uncertainty in the marketplace any investment properties that have substantial vacancies or where the main lease is due to expire in the near future will be viewed as too risky. Likewise, with so many recent company closures, particularly in the retail sector, the quality of the tenant(s) and sectors in which they work will all be closely examined before Irish investors commit.
Cashflow and covenant strength will therefore be critical in ensuring that the finance costs of the investment are adequately serviced.
Gold: Trophy properties in prime locations will appeal to Irish investors who have the liquidity and finance to invest. It is likely that such properties will be found closer to Irish shores with emerging markets such as the Far East losing favour in preference of major Western European cities. Established, reliable, ‘old favourite’ locations such as London, Berlin and Paris are expected to be in focus for providing solid and consistent investment opportunities.
Overall, Irish investors will be busy over the coming years consolidating their international property holdings. Investors will be assessing ways in which to add value to their existing investments and managing their portfolio balance by selling off poor performing investments in order to enable re-investment in new properties with better growth prospects.
Irish investor activity in the West Midlands over the next few years will subsequently be subdued until stability and growth returns to the Irish and UK markets.
However, I’m confident Birmingham will remain on the investment radar. The city’s close geographic proximity to both London and Dublin combined with various multi-million pound initiatives such as the Colmore ‘Business Improvement District’ (BID), underway to improve the attractiveness of the city of Birmingham, make it one to watch for the near future.
Experienced Irish investors will not forget the healthy returns the city has delivered over the past few years and their shrewd understanding of the Birmingham market will ensure they are among the first to recognise profitable future opportunities.