Pearse Doherty (Donegal, Sinn Fein)
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189. To ask the Minister for Finance his views on the fact that commercial property investors are predominately international REITs and equity funds and that prime office rents increased by 14% in the fourth quarter of 2016; if his Department conducted a risk analysis of a potential bubble in the commercial real estate sector; and if he will make a statement on the matter. [13190/17]

Michael Noonan (Limerick City, Fine Gael)
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According to market research published this week by Savills, commercial property investment in 2016 was dominated by institutional investors and real estate investment trusts (REITS), who accounted for approximately 80 per cent of total investment turnover.

Over the past two years, Ireland's commercial real estate market has been characterised by ongoing divestment by private equity holders who, having entered the market earlier in the price recovery cycle, are now experiencing yield compression and exiting their positions by re-trading properties to institutional investors who are willing to accept lower yields for prime assets. Savills reports that private equity firms' share of total turnover value has fallen from 53 per cent in 2012 to 12 per cent in 2016.

Overall, this change in composition of real estate dynamics marks a positive development in that it reflects a shift towards a longer-term focused investor base, rather than the highly yield-sensitive short-term private equity investment which characterised the landscape immediately post-crisis.

The continued rise in office rents reflects ongoing growth in economic activity and employment and the associated record level of office take-up over the last number of years. The growth in demand for office space and the increase in prime office rents has induced a significant pick-up in construction activity much of which is pre-funded or secured by forward-purchase agreements. According to CBRE, approximately 77,000 sq.m of office space was constructed in 2016, with a further 388,000 sq.m of office space currently under construction. This expansion in construction activity should help to alleviate some of the inflationary pressure in the office rental market. In addition, the strong granted planning pipeline indicates that the supply of office space has the potential to expand to meet growing demand over the next number of years.  

I wish to assure the Deputy that my Department continues to monitor developments in the Commercial Real Estate market on an ongoing basis. As part of its financial stability mandate, the Central Bank also monitors development in the sector.