A subterranean starting point provides context for somewhat stratospheric investment returns on Irish real estate in 2014. While recently released annual results confirm the downward trend of Canada’s real estate cycle, values elsewhere are recovering from the clobbering sustained in the 2008 financial meltdown.
Notably, the JLL Irish Property Index reports an overall return of 41.7 per cent for 2014. In contrast, 2014 results of the REALpac/IPD Canada Quarterly Property Index — presented last week to gatherings of real estate professionals in Toronto and Vancouver — reported a 7.3 per cent total rate of return on the directly held standing investments of the 42 participating portfolios.
After five consecutive years of outperforming most other world markets, holders of Canadian real estate are now looking admiringly at peers who have diversified further afield.
“We all wish we were Tom Schwartz (president and CEO of CAPREIT) and went to Ireland a year ago,” Michael Brooks, CEO of the Real Property Association of Canada (REALpac), observed during a panel discussion in conjunction with the release of the REALpac/IPD Canada results.
Analysts reiterate that Canada’s extended run at the top of the global market hierarchy was inevitably bound to end. However, the same is true for Ireland’s depressed status. For example, Dublin was among the hardest hit of the sixty IPD Global Cities with a 37.7 per cent loss of value in its worst recorded year, 2008.
Last year’s record-setting returns are still making up for that loss. “The context of recovery off a low base remains important. Despite these increases, the Overall Returns Index remains 15.9 per cent lower than the peak of the market in Q4 2007,” the JLL Irish Property Index report advises.
Similarly, JLL’s Dublin Office Market Review and Outlook 2015 reports a 43 per cent increase in office rents since December 2013, which is still 20 per cent lower than average rents in 2006. With no new space to be delivered to the market in 2015, further rent increases are projected, albeit at a more modest rate than last year. Office vacancy rates remained in the double-digits at 10.2 per cent at year-end, but, again, were a vast improvement from 18 per cent in the fourth quarter of 2013.
All this suggests a market still in ascension — a trend also seen in other markets previously underperforming Canada’s. The United States, with a total rate of return of 11.4 per cent, and the United Kingdom, with a projected total rate of return of 17.9 per cent, both had superior years in 2014.
“I wouldn’t be surprised if the Canadian returns were below the global index when it is released in April,” noted Simon Fairchild, executive director with the index producer, MSCI Inc.
