London MarketAlthough the days of mega-deals might have gone, big Irish names have been busy buying up London property, writes Gretchen Friemann

There has been little let-up in the negative news flow afflicting London's commercial property market over the past few months. For a sector that was once the darling of investors it's been a painful reminder of the recession-hit early 1990s when capital values and rental growth were fixed in a downward spiral.

The speed of the reversal has been swift. Just over six months ago buildings in Canary Wharf and elsewhere in the capital were trading hands for record prices.

Then the global credit crunch brought the market to a shuddering halt. Mega-deals, on the scale of Quinlan Private's joint £1.6 billion (€2.132 billion) purchase of Citibank's headquarters with British real estate investor, Propinvest, which was agreed last July, disappeared and haven't been seen since.

The tighter financing conditions and uncertainty about the prospect of further price depreciations have convinced many investors to sit on the sidelines. Irish players, however, are exhibiting no such caution.

Ever since yields started to move out aggressively last November, Irish investors have been among the most active buyers in the market, snapping up properties at what might later be viewed as bargain prices.

Eugene Larkin, the developer behind the Tyrellstown Town Centre in west Dublin, bagged Anglo Irish Bank's UK headquarters over Christmas for £47 million (€62.65 million), £3 million (€4 million) under the asking price, while the Jaguar syndicate also acquired a building in the Square Mile recently with the purchase of 10 Queen Street for around £160 million (€213 million), some £30 million (€40 million) below the asking price.

Last November David Arnold of D2 Private splashed out £180 million (€240 million) for an office block in the capital's West End, in what was then the largest office deal since the onset of the global credit crunch. Arnold, who already controls a substantial London property portfolio, paid 10 per cent under the asking price for the building which, after the next rent review in 2011, is expected to generate a yield of around 7 per cent. And these deals are just the ones that have emerged into the public eye. Industry experts claim most of Ireland's major property players are actively scouring the London and southern UK market for bargains. Heavyweight syndicates, such as Quinlan Private and Warren Private clients, are on the lookout, as are Davy stockbrokers and Bank of Ireland Private.

According to Michele Jackson of DTZ, much of the focus is on institutional property. The large retail funds are seen as forced sellers as they struggle to restore depleted cash reserves bled dry by the unprecedented demand for redemptions.

Jackson points out that "the only people selling in this market are the ones that have to" and insists the challenging environment is producing "excellent opportunities" for canny investors. "Most of the vendors are not selling because of anything wrong with the fundamentals of the property. They are doing it because they need to generate cash."

Fergus Keane, a senior director with the agency CB Richard Ellis, also points outs that property is once again self-financing as yields have moved above five-year money market swap rates.

"For the first time since 1991, a positive arbitrage has opened up. You can now get a yield of 6.1 per cent while borrowing at a rate of 4.8 per cent, producing a positive cash flow." He adds this self-financing rate "has occurred just twice in the past 30 years" and argues for that reason "it looks like a good time to buy".

Keane claims the strengthening euro against the pound is an additional factor spurring on Irish investors.

So have Ireland's insatiable property players timed their bargain hunting correctly or are there worse times ahead? The recent spate of negative statistics may have made uncomfortable reading for those betting on an upward swing in capital values in the short-term.

Last week the industry benchmark, IPD, released figures showing total returns - the combination of rental income and capital growth - fell at its fastest rate ever recorded in the final quarter of 2007. A spokesman for the index stated that the "collapse of investor confidence has been faster than ever before, even during the 1990s' crash".

The news followed on from a Royal Institution of Chartered Surveyors' study that revealed occupier demand for UK commercial property has sunk to its lowest level in five years.

While economists and analysts warn of further turbulence throughout 2008, property agents insist the correction has been overdone in certain sectors. Domhnail O'Sullivan of Savills investment team points out that yields in London's West End and around Victoria are starting to contract once more and he claims bargain hunters entering the market now are doing so late in the game. "There is less institutional stock around than people think and the supply is starting to dry up as companies impose restrictions on withdrawals."

But agents also acknowledge that even if Irish investors prove the doom merchants wrong this year, one thing is clear: there will be no more mega-deals until the global credit squeeze eases.

Keane says transactions are likely to remain within the €20 million to €100 million mark. For the moment then, the halcyon days of multi-billion euro prices are over and the sector that many viewed as a one-way bet after the most spectacular bull run on record has become a far less predictable place.