Bank of Ireland says Irish property investors should focus on mainland Europe

Irish
Bank of Ireland says Irish property investors should focus on mainland Europe
By Finfacts Team
Jul 13, 2005, 11:31

Irish domestic investors interested in diversifying their portfolios need to look beyond Ireland and the UK

In its Global Property Outlook published today, Bank of Ireland Private Banking recommends that commercial property investors should focus attention towards continental markets such as France and Belgium. The key reasons pointed to in the research are the relatively attractive yields when compared to UK and Irish commercial markets, lower borrowing rates than the UK and the absence of currency risk.

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Commenting on the findings of its research, Peter Collins, Director Bank of Ireland Private Banking said: “Domestic investors seriously interested in diversifying their property holdings need to look beyond the shores of Ireland and the UK. In the past twelve months we have completed significant deals in both Belgium and France in total valued at nearly €200m. We anticipate potentially doubling this amount in the coming year. Given lower borrowing costs and slightly better yields we see this as a logical home for Irish investors.

Lloyd's Insurance headquarters in London - one of the many prime office buildings in London that have been acquired by Irish prroperty investors in recent years

“Investors often find it challenging to invest in property internationally – whether because of legal, tax, currency or language issues, many investors simply find it difficult to make informed decisions about international property. Our research-based approach helps us to focus our efforts on those countries where we can see the greatest potential. Given the scale of investment in property globally, we believe that this disciplined approach is central to getting property investment right for this environment. At present we are focusing most of our search on behalf of private clients on continental markets, in particular in France, Belgium and the Nordic countries and more selectively in the UK. We are obviously significant investors in the UK at present (nearly €0.5bn in assets) and continue to be very happy with the progress of our deals there.

“However pricing in the UK has become more challenging and we are would be very selective about any deals in the UK at present”, he added.

“Diversifying is further supported when one looks at the relative size of the Irish and UK markets. Assessment of the size of the global property markets is notoriously difficult. However, we estimate the size of the high-grade commercial property markets of the 53 countries that we used in our research model as somewhere between $10 and $15 trillion. Over 90% is concentrated in the 20 largest markets, with the US leading the way, accounting for approximately 30% of the entire market. The Irish market is very small by comparison and only accounts for around 0.5% of the global commercial property market, while the UK market represents roughly 7% of the world market”, he added.

Pat O’Sullivan, Senior Economist, Bank of Ireland Private Banking in presenting the research commented: “We have been researching the relative attractiveness of the world’s major property markets for some time. Our objective has been on building a model that screens out countries where we cannot see an economic argument or where we see undue risk. This helps us to concentrate our search for individual property deals in those markets where we see the greatest potential. Given the extent of gains in property markets in recent years, this list now totals just 10 countries, the bulk of which are in Europe.

“Irish investors may be no strangers to investing abroad but the UK market has generally dominated private investor capital flows. However, with the advent of the euro, the prospect of higher returns abroad and the need for diversification has enticed Irish investors into other foreign commercial property markets”.

“Without doubt, the biggest challenge facing not just global property markets but all asset classes is the sustainability of the current low interest rate, low inflation rate environment. If interest rates have indeed declined on a structural basis, then the current pricing levels of real and financial assets are broadly justified”, Pat O Sullivan added.

Download the report (4.48mb in pdf format)