Online shopping and demand for environmentally correct offices have sent investors fleeing from one of central Dublin’s prime addresses, a new report has found.
Only one investment property, worth just €1.8 million, changed hands in Dublin 2 during the first three months of this year, when BNP Paribas Real Estate Ireland says deals totalled €760 million.
John McCartney, the firm’s director of research, warns that investors are shifting from shops and older offices that dominate the district.
He maintains that competition from online shopping has dampened buyers’ appetite for high-street retailers, although the letting of these buildings improved in the first quarter of the year.
“There is still significant appetite for offices given the sustained growth in Ireland’s service economy,” he said.
“ But institutional investors really want buildings which meet the highest environmental standards as these are now easier to let and generate more rent.”
While developers are building “a considerable amount” of new, higher specification offices, BNP says in a new report that there are few in Dublin that meet the highest environmental standards.
Also, overseas institutional investors bought much of Dublin’s grade A offices relatively recently, and are reluctant to sell, the firm noted.
Mr McCartney argues that construction inflation, which his firm says hit a record high in March, is deterring investors from buying and refitting older offices.
Shops and offices accounted for just 9.2 per cent of commercial property deals in the first quarter, less than one tenth of their share of investment trading 11 years ago, BNP said.
Homes and warehouses accounted for 73 per cent of the €760 million of commercial property that the firm calculated changed hands over the three-month period.
The real estate group said investors regard these as safe bets as people will always need a place to live and goods will always have to be warehoused.
Shops made up just 3 per cent of deals while offices accounted for around 6 per cent of the total turnover.
Even against this background, BNP Paribas Real Estate expects investors to put €4 billion to €5 billion into Irish commercial property this year.
According to Kenneth Rouse, the company’s managing director and head of capital markets, the Republic’s strong economy and fast-growing population makes it attractive to buyers.
“Strong relative value and good liquidity, combined with a stable economy and favourable demographics are attracting, and will continue to attract, significant capital to Ireland,” he said.