IRISH investors spent a massive €11 billion buying up houses, office blocks, hotels, shopping centres and pubs in Ireland and abroad last year.
The figure, despite repeated warnings of a downturn in the property market, looks set to be beaten in 2007 as investors continue to believe that they can generate a profit.
In its review of 2006 CB Richard Ellis found that investors pumped an unprecedented €3bn into the commercial property market and that as much again will likely be spent this year.
However, estate agents CB Richard Ellis believes the days when investors could look forward to high- single, or even double-digit, returns may be over.
The estate agents are also predicting that Irish investors will have to look to overseas markets.
“As we gear up for the year ahead, the prospects for the commercial property market in 2007 look very promising indeed, although most people accept that the record levels of property returns achieved in recent years are unlikely to be replicated,” the firm’s director of research Marie Hunt said yesterday.
“This is true of the Irish market and many other European locations. In the absence of significant yield contraction, the primary driver of returns going forward will be rental growth. Investors who want to generate above-average returns from commercial property, either at home or overseas will have to adopt more pro-active strategies and focus on asset management and redevelopment opportunities.”
Across the board there was demand for all types of property. The strength of the economy is such that the demand for office space is coming from Irish firms looking for accommodation near key transport links.
It predicts that rents in excess of €700 per square metre will be charged for prime office land in Dublin and that with several major developments nearing completion, a total of 185,000 square metres of office space will be let in 2007.
The outlook for the retail market was also generally positive and CBRE does not expect rental yields to be under pressure as a number of retailers, such as Superquinn, Marks & Spencer, Superdrug and Penneys are expected to be looking for retail space.
It is also expecting a number of older shopping centres to come on the market, offering opportunities for redevelopment.
The hotel market should remain strong, CBRE says, with the phasing out of certain tax breaks reducing the potential for oversupply. The firm predicts that a number of landmark pubs will go on sale this year.
“We expect that pub prices will, for the most part, remain static this year, on the basis that trading conditions in the licensed trade are quite challenging at present and buyers are more selective.”
Those looking to invest in foreign property will face a more difficult year as they will have to compete with major international institutions to get their hands on choice locations. Irish investors spent 8bn acquiring overseas property in 2006.
CBRE said it expects Irish investors to be less active in the British market this year because rising rates there makes funding transactions through debt less favourable given the declining yields. It believes investors will concentrate on the office and retail market in Amsterdam, Brussels, Barcelona and Paris.
“However, Irish investors will have to learn to manage their expectations on the basis that we are now entering a period of low, but more sustainable, property market returns over the next couple of years.”