Commercial property in Ireland and across Europe has been slow to recover from the lockdown shock in March 2020. One bellwether is Hibernia Reit plc, which has a large portfolio of Dublin office properties. In the year to January 2021, the share price has declined 18%, while the smaller Yew Grove Reit is off 9%.

In November last, New Ireland announced that savers and investors whose wealth is tied up in the company’s Property Fund are still locked into the fund. Along with other life companies, New Ireland pulled the shutters down on its property fund redemptions last March. The company says the exit ‘deferral’ continues because it is unable to source reliable valuations for fund properties.

“We believe this course of action is in the best interests of investors. The deferral remains in place and will remain in place until further notice,” the company informed brokers recently.

In an update to investors, fund manager State Street said that the Property Fund performance to mid-September was -9.6%. State Street commented that -7.9% of this decline was due to the change in pricing basis from acquisition to disposal effected in March.

The New Ireland Property Fund currently has a fund size of €1,120m. Just on half the assets are in Ireland, 13% is in cash and the balance spread across commercial properties in the Netherlands, France and the UK. One-third of the fund is in Irish office properties, where valuations have held up better than the fund’s retail element (9% of fund assets). State Street says that year to date the fund’s retail assets have declined in value by c. 19%.

In Association with

Valuing Dublin office properties at the moment is difficult. Though rent rolls have held up, new lettings that weren’t agreed pre-Covid are thin on the ground. “Since Covid-19, there have been very few purchases and sales of commercial properties. This means Covid-19 has created a level of uncertainty in relation to the value of commercial properties for now,” the company told brokers.

Estate agent JLL estimates the Dublin office vacancy rate stands at c.8%, with a rate of c.6.4% in the city centre. It is estimated that c.5.6m sq. ft. of new and refurbished office space will become available in the capital over the next three years. Half of this is pre-let, but that will still leave c.3m sq. ft. of new space looking for tenants.

Smoothing Over Equity Volatility

Zurich Life’s Active Asset Allocation Fund has proved popular since its establishment a decade ago, with a current fund value of c.€550m. The fund was launched in the face of severe volatility in equity markets after the financial crash, the idea being to smooth over the market highs and lows.

AAA is made up of four other Zurich funds: International Equity, Fixed Income, European (ex-UK) Property, and Australasia Property. Equities make up 54% of the fund, followed by bonds (28%), alternatives such as oil and commodities (12%), and cash (2%). The property element is passive and linked to ETFs, and currently makes up just 4% of the fund assets.

Over the past two years, exposure to bonds has increased while allocation to equities and alternatives has reduced. North American equities are strongly favoured, as is the sovereign debt of Italy and Spain.

Lower volatility brings peace of mind though it can also mean lower returns. In November, AAA was showing a 10-year annualised return of 6.3% compared with a corresponding 10.9% for the International Equity Fund, AAA's largest component. That gap could narrow when US equity markets turn south -- if they ever do.

Photo: The Anchorage in central Dublin is owned by the New Ireland Property Fund