07 October 2014 | Dublin
Dublin's compelling investment story.
By JLL Ireland
A decade ago, Dublin was riding high. With Ireland's burgeoning economy and attractive tax regime attracting a flood of international investment, the so called 'Celtic Tiger' was seen as exemplifying how a relatively small but highly ambitious country could thrive in today's competitive economy. Dublin property was in the vanguard, with soaring demand, investment and capital values creating a 'hot spot' that was the envy of other markets worldwide.
Then in 2008, the music stopped. Worse still, the Celtic Tiger's story of boom-to-bust was one the worst ever recorded.
Whilst difficult at the time, Ireland's readiness to face up to its problems was laying down a solid platform for recovery and is now perceived as having one of the most robust property market recovery stories in Europe. Having tackled its issues more decisively than any of the other troubled euro states, Ireland has engineered an exemplary economic recovery based on solid fundamentals, exited its EU/IMF bail-out, and returned successfully to the bond markets. Its projected economic growth is amongst the fastest in the EU.
The property market – a key litmus test of economic confidence – has joined in the recovery. Hannah Dwyer, Head of Research, JLL Ireland, comments: "Ireland is in the second phase of recovery, with real signs of resurgence and some great investment opportunities. Capital values in the Dublin office market are up by 19% in the past year, but are still 60% below their pre-crisis peak. And rental growth is forecast to be ahead of any other city in Europe."
Given such statistics, it's hardly surprising that demand for Irish property assets is rebounding, with new investors continuing to enter the market. Research by JLL suggests that total volumes for direct and loan sales in Irish real estate will hit €4bn this year, a figure that will be €600m ahead of the previous peak in 2006.
John Moran, Managing Director, JLL Ireland said that "Since the boom, the property market has evolved and adapted to its changing circumstances. It is now operating very differently, with investors backed with cash, as opposed to debt. The spectrum of interest in Ireland has continued to broaden in terms of investor type and investor geography, with new entrants from across the globe looking to invest here. American, German, Israeli and UK investors have all made purchases in the last 2 years, and we are now starting to see money from the Middle and Far East, as well as Asia enter the market. Domestically, the dominant parties are institutions and REITs, which have been very active in the last 12 months".
An example of Ireland's progression from boom-to-bust to renewed growth is evident in rental values. Prime office rents went from €60 per sq.ft. to €30 per sq.ft. from peak-to-trough, but have since improved by 50% to now stand at €45 per sq.ft. Further average rental growth of 7.4% per annum is also forecast between 2014 and 2018.
A further positive sign is that the real estate recovery is broad-based across sectors. Figures for the first quarter of 2014 showed the JLL Irish Property Index performing strongly. Overall returns – up 9.1% – were positive for the tenth consecutive quarter, while year-on-year overall returns were up by 24.9%, equating with returns in 2005 and 2007.
Alongside rising returns, there are several other reasons for optimism. JLL's latest annual Global Real Estate Transparency Index, published in June 2014, shows Ireland rising from 15th to 8th on overall transparency – and ranked first in categories including transaction process, regulatory & legal, and governance of listed vehicles. This bodes well for future confidence and activity.
Dublin's recovering economy and property markets are supported by Ireland's pro-business environment. The 12.5% global tax rate remains a significant pull-factor for investors, but this is also reinforced by a young, highly skilled workforce, Euro currency, London timezone, and easy east and west flight connections.
The message is clear. The Celtic Tiger is almost back to full health. Dublin is a thriving European capital city and there is still further scope for growth - making the investment story particularly compelling right now.
Dublin is back on the radar of investors across the world. Hear from our experts and read our "Why Dublin? Why Now?" report.
Arthur de Haast, Lead Director International Capital Group, talks to CNBC Squawk Box about real estate market recovery in Europe and Ireland.
Find out more about JLL's services in Ireland