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Singapore investors making foray into Irish property

Monday 27 November 2017

Commercial real estate there drawing interest due to chronic undersupply and rising rents post-Brexit

Singapore - IRELAND is gaining its own limelight as Brexit unravels. With banks and other corporations seeking another European Union (EU) hub, Irish commercial and industrial spaces have seen increased demand - including from Singapore companies.

For instance, Singapore investment firm Fine Grain Property made headlines in Ireland earlier this year when it joined hands with sovereign development fund, Ireland Strategic Investment Fund (Isif), to invest 100 million euros (S$158.6 million) in commercial property there.

Its founder and CEO Colin MacDonald says the trend of Singapore firms investing in Ireland is nascent but growing, especially in the industrial property sector.

Property deals since 2016 have included The Ascott's purchase of Temple Bar Hotel in Dublin for 55 million euros in 2016; Keppel DC Reit's acquisition of its second data centre in Dublin for 66 million euros in September this year; and Fine Grain and Isif's investment of about 50 million euros so far in four industrial properties in Ireland - one in Dublin, two in Galway, and a fourth one in Athlone. Fine Grain is in the process of acquiring six more industrial and business park properties outside Dublin.

GIC last month also announced its purchase of a 10.2 per cent stake in Irish residential property developer Glenveagh Properties, while Oxley Holdings launched its Dublin Landings project in October 2016 - a mixed-use development consisting of office and retail space and luxury apartments.

Mr MacDonald says that in Ireland, there is a lack of developers wholly focused on industrial developments. Ownership is very fragmented, quite unlike Singapore which has a dedicated state industrial landlord and many large private-sector landlords and real estate investment trusts.

Furthermore, scarred by the global financial crisis, Irish banks have pulled back development credit for industrial projects outside Dublin. The crisis had hit Ireland especially hard as Irish banks were already over-exposed to the local property market before the crisis.

"The banks went through a period of extreme difficulty, and have been slow to start lending again as the economy recovers," Mr MacDonald says.

For this reason, private institutional capital from firms such as Fine Grain Property and funds such as Isif are much demanded for development work outside the capital city.

Brexit has also added to more demand for commercial property in Ireland.

Since Britain decided to leave the EU, banks like JPMorgan, Bank of America, Barclays and Citi have announced relocation of bankers and operations to Dublin.

They are preparing for Britain's 2019 departure, which could put an end to UK-EU passporting rules that have allowed them thus far to sell financial products across the continent.

EY in July named Dublin as the top destination which financial services companies in the UK are moving staff to, with Frankfurt a close second.

As for the industrial sector, CEO of Keppel DC Reit Management Chua Hsien Yang says that both its data centres are located in Dublin because the city is "a key European data centre market with established infrastructure, a skilled workforce and strong government support".

"The market is well-positioned to benefit from Brexit as the only remaining English-speaking country in the European Union," he adds.

Another draw for getting into Ireland's commercial property sector is rising prices and rentals.

Executive chairman and CEO of Oxley Holdings Ching Chiat Kwong says that the shortage of property supply - not just in the industrial segment but also in office and residential - has led to strong increases in rental rates and prices.

"We see that supply is slowly catching up, while the prices remain strong in developers' favour, especially for projects at good locations," he says.

According to CBRE Research, prime industrial rents rose by more than 25 per cent in 2016 to reach 8.76 euros per sq ft. This has led to an escalation in new developments and more competitive bidding for sites in 2017.

For Fine Grain Property, all its occupied buildings are currently generating gross yields on their acquisition price of more than 9 per cent, and the new developments are expected to generate similar yields.

Mr MacDonald says: "Ireland has come onto the international institutional radar now as a real estate investment destination, so you've seen almost for the first time over the last four to five years large volumes of international institutional money investing in Ireland."

He believes the investing pattern will radiate outwards - from being currently Dublin-focused into other surrounding counties.

This will come as investors get more comfortable with the market, and capitalisation rates of commercial property in Dublin decline from the current 4.5 per cent.

Again, alternative sources of capital will have to take the lead in guiding developers' decisions to venture beyond Dublin, as domestic banks continue to remain nervous about stepping outside their comfort zone in the capital city, he adds.

Source: The Business Times