These efforts have in turn opened up and professionalised parts of the Irish market that had been neglected due to a limited investor appetite, resulting in a sector lacking scale, general investment and often ongoing maintenance. This is most noticeable in the private rented sector PRS , where under-investment had led to poorly managed schemes tainting the perception of the sector in the public eye. The new wave of professional landlords is fast changing that perception by offering tenants high-quality, well-managed accommodation with a host of complementary services such as hour maintenance, on-site concierges, and residents clubs.
These are lifestyle offerings and tenants are clearly voting with their feet. Our data on tenure shows that tenants remain in a professionally owned and managed unit for almost three times longer than in a traditional private buy-to-let unit. The stability offered by long-term tenants in professionally owned schemes is a notable advantage to landlords, providing secure income streams to investors while providing comfort for the tenant.
These income streams represent one of the key attractions of Irish property to international investors and, despite recent moves in pricing, Ireland is still an attractive market on a relative basis. Dublin still offers some of the strongest net income yields with a considerably narrower gross-to-net yield spread than many peer markets.
The latest prime Dublin PRS net initial yields net operating income cited by the major valuers show a convergence of opinion towards the 4 per cent mark. We would argue that Dublin PRS yields still have some way to go, especially given the disconnect between prime office yields, with the room for further rerating along European norms offering the potential for a further per cent increase in capital values on yield moves alone. In almost every comparable European and North American market, prime PRS tends to trade at about 50bps stronger than prime offices.
Until recently Ireland was the opposite, though improvements flowed throughout with Dublin PRS yields now broadly matching that of Dublin CBD offices at 4 per cent. This relative value prospect and stable income offering will continue to attract new sources of international investment into the PRS sector next year, aiding supply as the housebuilders further scale up their ability to provide product.
The surge in demand for PRS investments does not mean the traditional commercial property sectors will fall out of favour, for the very same reason they remain popular and competitive for investors: income. Dublin office investments are still in an enviable position internationally with strong and growing income streams from a diverse tenant base.
Income returns may have moderated as capital values rose in the recovery, but at 4. However, it is not just the rate of return that is attracting investors to Ireland, but the low risk and stable rate of return. Investors, especially pension and life funds of continental European origin, place great emphasis on leasing structures.
Traditionally, this is one of the reasons London has dominated the focus of such funds, but as we benefit from similar leasing structures excepting now for upward only rent reviews attention has moved to consider Dublin as a source of stable income. Tight levels of speculative office supply in Dublin have unsurprisingly helped drive headline rents upwards and we are now back at close to pre-crash levels.
The ban on new upward-only rent review clauses in leases from has pushed landlords to thinking increasingly about derisking income streams in the future. This is all because of the growing requirement for would-be tenants in Dublin to commit to longer office leases, with less flexibility breaks and greatly minimised incentives rent-frees. Often such a commitment can be more attractive to landlords than a higher headline rent until the first review. The lengthening of leases in the Dublin market very much bucks the trend being experienced by many comparable markets.
Our analysis on leasing trends in Dublin, conducted with agents Knight Frank , shows that lease terms for offices continued to lengthen over the last year to an average of London office lease lengths have fallen consistently since the June Brexit vote.
Dublin has also gained from a longer average term-certain as break clauses are pushed further and further out, delaying a key risk event for the landlord. Similarly, rent-free periods, the traditional incentive offered by landlords to new tenants, have fallen by 50 per cent in Dublin over the last four years while rising by 33 per cent in London. The performance of the Dublin office investment market over the next year will be comparatively dull compared to previous years, but for investors that is a key advantage as the Irish capital offers stability at a time of broader uncertainty.
The Irish investment property market has been rewarding for the adventurous early investors who entered at the bottom of the market. We estimate Dublin office investors have generated a cumulative total return of about per cent over the last six years, whereas residential investors could have collected a return of about per cent over the same period.
These returns were overwhelmingly 85 per cent capital-growth driven during the key recovery years of to This performance trend will continue, especially in the office sector, into This shift is a natural and welcome progression of a mature market that is dominated by professional investors with a cautious view on risk.
Returns might be lower, but Ireland will still be an attractive market for investors. Offering certainty is a non-existent commodity in property markets. With continued efforts to drive long-term stable income streams, the Irish market is doing its best to offer the globalised investment sector a credible alternative and comfortable home for capital. Colm Lauder. Because financial claims may be short term or long term, real or financial, the key to development is to raise long-term investments as a percentage of capital inflows into LDCs.
While the United States has been, along with developing countries, the major recipient of direct investment inflows, it is also a major supplier of foreign direct investment. As Table 1 shows, flows of net investment from industrial countries to LDCs were substantial and were a major impulse to their growth; however, much of industrial and developing country investment was funneled to the United States.
Purchases of such reserve assets, primarily short-term U. The non-U. Almost half of total net direct investment in developing countries was invested in three LDCs: China with 26 percent, Brazil with 13 percent, and Mexico with 8 percent. At the other end of the spectrum, the countries of sub-Saharan Africa accounted, in total, for only 5 percent of total direct investment in LDCs.
Capital from these countries was invested in their own and other European colonies and in other developing nations, first in the Western Hemisphere and, more recently, worldwide, particularly in China and Brazil. During the nineteenth century, the British financed the transcontinental railroads in the United States and Canada and built vast agricultural plantations in Africa and Asia.
Today, Great Britain and the Netherlands remain, as they have from colonial times, among the largest direct investors in the United States: Britain is largest, followed by Japan, Germany, the Netherlands, and France. As of , U. As Figure 4 shows, foreign direct investment flows have cumulated to huge international holdings by these five principal investors. Mack Ott is an international economic consultant whose major assignments have been in the former Soviet Union countries, the Balkans, and Egypt.
During and he was macroeconomic adviser to the chief economist of Nigeria and to the West African Monetary Institute. He has also been a U. Treasury adviser to the Ministry of Finance of Saudi Arabia. Footnotes 1. Technically, the sum of capital account, financial account, and reserve flows finances the current account. The financial account—portfolio investment and direct investment—accounts for 90 percent of the financing while the capital account—payments for buildings and nonproduced fixed assets such as land—constitutes a minor part of the financing of the current account, typically less than 10 percent; a miniscule residual amount is accounted for by flows of currencies between central banks.
Further analyses of capital flows, their accounting, and their relation to trade and international investment are contained in the NBER volume edited by Martin Feldstein Thus, the daily flow through currency markets is nearly one-third of the annual volume in financial flows.
For nearly all international or regional data, the most recent observations are for or William J. These international organizations are primarily the International Monetary Fund, the World Bank, other regional development banks, and the United Nations. Still, the overall magnitudes clearly imply that the overwhelming majority of financial transactions involve industrial countries rather than LDCs.
In , capital flows of Hong Kong amounted to more than 7 percent of the world total as inflows to Hong Kong financial assets and outflows from its liabilities each amounted to fifteen times their levels in succeeding years. This is not a recent problem: the first IMF report on this issue, appearing in Report on the World Current Account Discrepancy , observed that a substantial discrepancy had existed since the s.
In former Federal Reserve Board governor H. Consequently, the U. Correspondingly, U. There would be corresponding reductions in industrial country and LDC balances reducing their current account balance and increasing their capital account balance. International reserve assets consist of foreign exchange holdings currency and short-term assets that are held by public central bank and government or private individuals and firms.
See Chuhan et al. Figure 4 also shows an implausible variability in the U. The available evidence makes the second explanation more likely than the first. About the Author Mack Ott is an international economic consultant whose major assignments have been in the former Soviet Union countries, the Balkans, and Egypt. Feldstein, Martin, ed. International Capital Flows. Heller, H.
Hearing before the Joint Economic Committee, 98th Congress. Washington, D. Government Printing Office, International Monetary Fund. Report on the World Current Account Discrepancy.
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