The Re-Birth of the Celtic Tiger

08 April 2015

 About a year ago our recently recruited head of research, Charlotte Tolfree, had what undoubtedly turned out to be a brain wave, making a strong case for our non UK focussed clients to consider investing in the Dublin office market.

I cannot deny that I was initially slightly sceptical, all too well aware of the catastrophic falls in value experienced by the Irish markets (commercial and residential) following the crash and the apparent never ending appetite from Irish investors to adopt high risk positions via development and the use of seemingly ever larger quantities of debt; I could not help but ask myself whether a market that I perceived to be relatively small and relatively high risk, really was suitable for institutional investors?

How wrong I was!!

A lot of credit must go to the Irish Government which, unlike many Euro economies, had the backbone to take some pretty tough and unpopular decisions, leading to GDP growth in 2014 of around 4.8%, projected 3.5% in 2015 (source: European Commission), both of which have made the Irish economy the fastest growing in the EU.

The unemployment rate has fallen from over 15% to around 10% (March 2015, Irish Central Statistics Office) which, whilst some way short of the 5% levels achieved pre-crash, is far ahead of the IMF forecasts of 13% by the end of 2014 and 11% by the end of 2016.

The other really impressive achievement of the Irish Government is that Ireland is now ranked (according to the Ernst & Young Globalisation Index) as the third most globalised country in the world with Dublin considered to be a hub for internationally mobile companies; bearing in mind that the Republic of Ireland is a country of only 4.6 million people with Dublin having circa 1.27m people (2011 consensus), achieving the status of being the third most globalised country in the world is, to my mind, quite remarkable!

Demand from global companies such as Facebook, Google and others, combined with a continuing lack of development, combined to result in Dublin rents growing in 2014 by circa 36%!

A phenomenal increase with a further circa 20% anticipated during 2015. From a KFIM perspective, we managed to acquire a couple of office buildings in central Dublin in the second quarter of 2014.

One of the two assets had passing rents of circa Euro 50 psf but which we appraised at the point of purchase off rents of between mid 20’s and early 30 Euros psf; reflecting the over rented nature of the asset, the acquisition yield was a very attractive over 10%+.

Our assumption at the point of acquisition was that the rents would never recover to pre-crash levels, an assumption that is beginning to look less and less accurate with investment returns to date (less than a year) already running at circa 25%.

So what about the future? Is the market now over blown? Is it time to get out? We think not; a combination of a lack of speculative development, a shrinking unemployment rate and a growing economy, all suggest that the Dublin market is well set to benefit from another couple of years of strong returns.

Charlotte is now busy seeking out the next target market. Watch this space……………………

Kevin Aitchison


T: +44 (0)20 7861 5103


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