Online shopping and demand for eco-friendly office space has driven investors away from one of central Dublin’s prime addresses, according to a new report.
A single investment property, worth just €1.8million, changed hands in Dublin 2 in the first three months of this year, as BNP Paribas Real Estate Ireland says transactions totaled 760 million euros.
John McCartney, director of research for the firm, warns that investors are turning away from the older shops and offices that dominate the neighborhood.
He argues that competition from online shopping has dampened shoppers’ appetite for high street retailers, even though rental of such buildings has improved in the first quarter of the year.
“There is still a significant appetite for office space given the continued growth of Ireland’s service economy,” he said.
“But institutional investors really want buildings that meet the highest environmental standards because they are now easier to let and generate more rent.
Dublin 2, to the south of the city, is home to shopping and business centers including Grafton Street and Baggot Street, and St Stephen’s Green.
While developers are building “a considerable amount” of new, higher specification offices, BNP says in a new report there are few in Dublin that meet the highest environmental standards.
In addition, foreign institutional investors have bought up much of Dublin’s Grade A office space relatively recently and are reluctant to sell, the company noted.
Mr. McCartney argues that construction inflation, which his firm says hit a record high in March, is deterring investors from buying and redeveloping older offices.
Shops and offices accounted for just 9.2% of commercial property transactions in the first quarter, less than a tenth of their share of investment transactions 11 years ago, BNP said.
Homes and warehouses accounted for 73% of the 760 million euros in commercial property the firm calculated to have changed hands during the three-month period.
The property group said investors view them as safe bets because people will always need somewhere to live and goods will always need to be stored.
Stores accounted for only 3% of transactions while offices accounted for around 6% of total turnover.
Even against this backdrop, BNP Paribas Real Estate expects investors to invest €4-5 billion in 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 rapidly growing population make it attractive to buyers.
“High relative value and good liquidity, combined with a stable economy and favorable demographics are attracting and will continue to attract significant capital to Ireland,” he said.