At this time, the property climates in Dublin and London could not be more different. The two markets are experiencing tectonic shifts in their global value. Dublin is the new hot market for residential and commercial investors alike, but London is staring uncertainty right in the eyes, which is causing a slowdown in activity. With messy Brexit negotiations providing little reassurance, London is surviving on reputation alone.
As an investor in both cities, South Hill Capital is well-placed to offer our thoughts on the differences between the two markets.
For investors, the acquisition of property in Dublin has historically provided a great opportunity to achieve high returns through value-add investing. The existing stock was generally dated, and the overall supply was low. Because of this, as demand for office space increased rapidly, so did prices. For savvy developers and investors able to provide high-quality space, the returns were favourable. This trend has continued over the past few years, with pricing pressures on the market beginning to resemble pre-2008 levels.
Conversely, investment levels in London have been reducing gradually; a reflection of weakened market confidence. This has created a strong buyers’ market, as owners are fearful of a downturn. On the face of it, this seems like a terrific opportunity for investors but much of the fear stems not from a lack of desirability, but instead from political uncertainty. With the UK due to leave the European Union in a matter of months, there is still no telling which political party will be in power when the time comes.
For many, this creates a real sense of fear. Labour, with Corbyn at the helm, threatens a real shake up. While the market is characterised by a chronic lack of supply, which is driving price and rental inflation; the provision of quality, affordable housing plays a key role in underpinning and maintaining the economic growth and competitiveness of London. Factors largely unachievable when developers and investors are unsure of the stability of the legal framework with which they proceed under. Taxation and legal expectation alter profit margins and the cost-effective nature by which transactions can occur is unknown.
This really emphasises the link between sentiment in an economy and real economic growth. Dublin, at the moment, can’t seem to put a foot wrong. While many have rightly pointed out that much of the attraction stems from the desire of multinational corporations to ensure a foothold within the European market, as long as the current administration continues to encourage foreign capital, pressure on domestic banks to fuel growth is minimised, allowing an impressive pipeline to form.
As investors, looking to operate in both markets, we have the special task of negotiating these two, vastly different markets; both provide much opportunity for success but at a time where we must all be vigilant in the face of adversity. We must wait and see where the value will appear and invest wisely in assets that offer value in terms of market pricing and the opportunity to add value.