Union Investment enters Ireland to capitalise on strong growth

German fund manager Union Investment Real Estate has made its first foray into Ireland to capitalize on strong growth in the market, Philip La Pierre, head of investment management Europe at Union Investment Real Estate tells PropertyEU.

‘The Facebook office deal marks the very first time that we have invested in Ireland for any of our funds,’ La Pierre said. ‘There were several reasons why this was an attractive deal to us, including the quality of the building and the steady cash flow. It’s also a sustainable building in a great location.’

On 26 May, Union Investment confirmed that it had acquired a €230 mln office complex in Dublin that serves as the EMEA headquarters for social media network Facebook. The acquisition of the two building complex in Grand Canal Square in Dublin’s South Docklands was initially reported by media sources back in February.

'It’s a very significant deal for the market,’ said Nick Coveney, director of business space in Dublin at Colliers. ‘There aren’t many buildings that size in Dublin. It’s one of the best located buildings in the docks – it’s where all the tech companies want to be.’ Colliers did not advise.

The office complex has been sold by Ireland’s ‘bad bank’ Nama in conjunction with Irish project developer Chartered Land. Comprising 23,300 square metres of space, it is fully-let with an average remaining lease term of more than 10 years. It was designed by renowned architect Daniel Libeskind – who also designed the One World Trade Center in New York – and completed in 2009.

Rental growth
The fund manager has been scouting for investment opportunities in Ireland for the past 18 months, La Pierre said. ‘We like the market because supply is very limited, against a backdrop of increased interest in office space due to strong GDP growth. The corporate tax rate is also just 12%, which attracts international companies and also drives demand for office space. In addition, the construction pipeline is very low, which is driving rental growth, which has risen significantly. Some office rents in this building in Dublin rose by 30% between the end of 2013 and 2014. Not many markets can offer that!’

Ireland’s economy has rebounded since the crisis, which also driving investor demand. The European Commission is forecasting GDP growth in Ireland this year of 3.5%, compared to an EU average of 1.7%.

The Irish market has also undergone a rapid recovery in the past year, as investors plough back into the formerly troubled property market. There were €4.54 bn of deals in Ireland last year, with office rental growth up on average by 19% in the period, according to JLL.

‘Rents went up hugely last year,’ said Coveney at Colliers. ‘There’s such a shortage of space that vacancy rates in the city centre are now sub three percent. The market has come on a lot in the past six months and rents are only moving one way.’

Dublin, in particular, has undergone a staggering renaissance, taking the top spot for investment prospects in PwC and ULI’s Emerging Trends in Real Estate survey over the past two years. According to DTZ’s Fair Value index, Dublin is also the most attractive market in terms of pricing.

Investment targets
Union Investment is aiming to invest €2 bn across its property funds this year, in line with the €2.1 bn it invested last year. As part of that, it is hoping to invest an additional €150 mln to €200 mln in Dublin offices over the next two years and a similar amount again for retail properties if the right opportunities present themselves, La Pierre said. ‘Ireland is now a lot further down the road from Spain; it has bounced back very well.’ However, he noted that Dublin is still a small market for global players, hence ‘there is a limit to our capital deployment there’.

Nama
Nama is also in the process of unloading further real estate loans acquired during the financial crisis, with the aim of completely winding down Nama by end-2020. Last year, NAMA realised proceeds of €7.8 bn from the sale of loans and property and other assets. Total sales proceeds from inception to 22nd May 2015 were €21 bn, a company spokesman said. In the company’s annual report published on 27 May, it announced that it held €13.36 bn of loans in its portfolio as of end-December 2014, down from €31.31 bn a year earlier. Nama has not published a figure for anticipated disposals in 2015.

Union Investment had around €29 bn of AUM as of end-March 2015.

Sara Seddon Kilbinger
Correspondent UK and German-speaking countries