15 Jul 2019

Irish REITs: JLL report shows a very busy Q2 on the investment front

The latest (Q219) Ireland Investment Market Report from agents JLL shows a strong end to H1 on the investment front, with €1.2bn of deals inked in the second quarter, double the Q1 outturn.

Over the past five years, an average of €915m worth of deals a quarter have closed, underscoring the impressive Q219 performance. Residential accounted for 46% of deals (within that, IRES’ purchase of the XVI portfolio for €285m was the most significant transaction), followed by mixed-use (24%) and offices (19%). Dublin continues to dominate in terms of deal flow, accounting for 88% of transactions in Q2, with Munster (10%) the location for most the rest of the deals by value. Overseas investors accounted for three-fifths of purchases in Q2.


In terms of the outlook, JLL sees a “steady pipeline” for H2, with eight €100m+ assets currently on the market. JLL sees total volumes of more than €4bn in FY19. 

UK this week

In the UK, Brexit uncertainty has weighed on sterling to the extent that GBP/USD fell to levels last regularly traded in April 2017 last. A key factor looks to have been the pledge by Boris Johnson to get the UK “match fit” so that it can leave the EU on 31 October “come what may”. Such hard-line rhetoric is likely to continue over the final week of the Tory leadership campaign as Mr. Johnson and his rival Jeremy Hunt compete to hoover up any remaining votes from wavering party members. 


It is also set to be a busy week for UK data with releases including labour market figures (Tue), inflation (Wed), retail sales (Thu) and public borrowing (Fri). Bank of England Governor, Mark Carney will also speak at an event commemorating the 75th anniversary of the Bretton Woods Conference on Tuesday, where investors will watch to see whether he continues to go against the grain of other central banks by maintaining a tightening bias.  


US this week

Market pricing for a July 50bp cut in the Fed funds rate has receded over the past week after figures showed that the US economy had added a robust 224k jobs in June. However, a more conventional 25bp ‘precautionary’ cut now looks to have been tied up by the combination of the June FOMC meeting minutes and Chair Jerome Powell’s semi-annual Congressional testimony. We now judge that the funds range will be lowered from 2.25-2.50% to 2.00-2.25% in July, having previously expected that the FOMC would have waited until September to make its first easing move. 


Equity prices have been bolstered by the prospect of an imminent US rate cut, with the S&P 500 breaking through the landmark 3000 level for the first time. However, scaled back expectations surrounding the extent of the easing that will be applied have seen a sell-off in the long-end of the yield curve. 


On the data front, the US is set to see a number of top-tier data releases. Tuesday sees the publication of both retail sales and industrial production for June, while the preliminary Michigan Consumer Sentiment print for July is due on Friday. Another key release is set to be the Beige Book on Thursday, which may give investors a further insight into the Fed’s view on the domestic economy and the prospects for inflation. Note that the US corporate earnings season for Q2 will also get well underway with 58 constituent companies of the S&P 500 set to report next week.

Europe & ROW this week

European bonds have also been supported amid speculation the ECB may restart QE purchases, with the account of the Governing Council meeting in June showing that policymakers had begun preparing to resume easing policy. We now expect that the deposit rate will be cut, by an estimated 10bps in September to -0.50%, but we would not rule out a further reduction early next year nor a return to asset purchases at some stage. 


Ahead of the next meeting on 25 July, data over the next week is thin on the ground. The German ZEW survey is out on Tuesday, whereas ‘final’ Eurozone CPI figures for June are scheduled for Wednesday. For the latter, we note the possibility of an upward revision after harmonised German inflation was restated to 1.5% from 1.3%. 


In Asia, Chinese GDP for Q2 on Monday has given markets some comfort (see note below). Meanwhile, Japanese markets will get off to a quiet start with Tokyo closed for Marine Day on Monday, before ending the week with CPI figures on Friday. Some central bank meetings are worth noting as we could see a resumption of dovish bias. The central banks of South Africa, Indonesia and South Korea are all due to meet on Thursday, with rate cuts expected in at least 2 of the 3 meetings, which could set the tone for the ECB and Fed the week after.


China's GDP figures for Q2 saw the annual pace of growth slow to 6.2% from the 6.4% witnessed in Q1, matching the market expectations. However, the quarter-on-quarter pace was slightly firmer than expected, firming to 1.6% from Q1’s estimate of 1.4%. At the same time, monthly figures for June showed signs of encouragement with the economy ending the quarter on a firmer footing. Notably, industrial production growth surprisingly strengthened to 6.3% (y/y) from the 5.0% witnessed in May (consensus 5.2%), retail sales firmed to 9.8% from 8.6% (consensus 8.5%), whilst investment growth was recorded at 5.8% (ytd, y/y) against an expectation of 5.5%. Overall, the latest figures provide some reassurance that China’s economy is not witnessing a more significant slowdown amidst the continued uncertainty over US-China trade relations. 

Economic Releases

13.30  US    Empire State manufacturing survey

13.50  US    Fed’s Williams speaking