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00:00:05 Suzie Nolan, Head of Property Fund Management, Aviva Ireland
I'm joined here today by Yvonne Kiernan, our Head of Valuations and Research to discuss the outlook for 2022. Now Yvonne, I suppose if you could start with your outlook for the commercial real estate market itself for the year ahead, if you could dust off your crystal ball for the moment.

00:00:19 Yvonne Kiernan, Head of Valuations and Research, Aviva Ireland
Absolutely. Suzie, we're starting off on a really strong trajectory from 2021 in terms of the economy and the wider real estate market. Ireland has achieved substantial vaccination rates, a sizeable recovery in unemployment rates and employment data, record tax revenues and improved customer spending, off the back of record levels of pandemic savings. In 2021, there was a reported 5.5 billion worth of investment spend, which is the second largest year on record, and it is likely that 2022 will see similar levels going forward as there is pent up demand for stock in the traditional sectors, particularly for prime stock as the flight to quality continues, but also for non-traditional sectors, such as health care, senior living and data centres.

00:01:00 Suzie Nolan
Okay excellent, I mean that all sounds very positive and Yvonne you mentioned obviously, savings, so pent up savings. So, I believe there's about €136 billion of savings now which is a record high, so that's personal savings sitting in Irish bank accounts or deposit accounts so earning, obviously, very little returns. I heard Dave McWilliams refer to punters having lots of spare money in their back pockets. So, I suppose, what does that money in back pockets, or indeed, money in deposit accounts actually mean for commercial real estate?

00:01:27 Yvonne Kiernan
Well there's a couple of ways that it can impact. Obviously, there's people going to go out now with money and looking to spend it, so retailers are going to try and attract them to the bricks and mortars stores, back into the bricks and mortar, rather than the online spending that we've seen over the pandemic period. But also, it means that people are going to look at investments where they can achieve better gains for their money, rather than keeping them on deposit.

00:01:48 Suzie Nolan
Excellent, Yvonne, that's really important. So that's the outlook for the market itself, can you give us your views, Yvonne, in terms of outlook for the fund?

00:01:57 Yvonne Kiernan
Absolutely. The outlook for the fund is good, we're primarily Dublin based, but we do have a number of assets outside Dublin in Galway and Cork and a number of retail parks, and they're particularly important given the subsector of retail that they are. During the pandemic, people were trading very strongly there given the types of retailers that are located in those parks and that they're large open spaces and it's much easier to socially distance. Our plans for the funds are to continue with our main strategy which is to have a bedrock of core income reducing properties, and then we will use our in-house charter surveyors to release a value from properties which have value add initiatives that can be applied to them. Obviously, we are going to continue on our strong rent collection rates, last year we had 97% of a rent collection rate which is great, but obviously we aim for higher for this year, and then also we are going to continue on our sustainability

00:02:46 Suzie Nolan
Just to touch on sustainability for a moment, it's obviously really important, you know, for the environment, it's really important for Aviva as a company as one of our main corporate goals, it's also really important for our customers, because obviously, if we can achieve sustainable buildings it means we attract better quality tenants, and those tenants are then better placed to pay higher levels of rent, and indeed are more resilient in terms of paying rent through turbulent times, such as the pandemic we've just experienced, so that's really important. So, Yvonne, you've touched on lots of positive news, which is fantastic for both the market itself and indeed the fund, so I'm going to bring in a little negative angle now; what would you identify as the three main risks facing real estate going forward?

00:03:25 Yvonne Kiernan
Yeah, Suzie, obviously the pandemic is still an issue and we're hoping that it's near the end, but you know there's always chances that new variant could emerge, and that's important in terms of its impact on retail trading and also on things like people returning to the office. For myself working from home that's an important consideration. Inflation and its impact on interest rates is a concern, but inflationary pressure is due to ease towards the end of 2022. Also, I think one of the main criteria is the lack of stock. The lack of good, modern, industrial stock last year was one of the main components in to how the industrial sector performed so strongly, but I think obviously if you look at the number of sites closures, we had during the pandemic period in 2021, that's going to impact on the development of, say, new office space in Dublin which we already know that those that are underway are 56% pre let.

00:04:11 Suzie Nolan
Really good points and actually when you tie in inflation with development there's obviously very high inflationary impact on development costs at the moment, so again another risk is obviously the increase in cost of developing new properties which is a problem also. So, I suppose, if you were to identify the key initiatives or the key trends that we might see emerging in 2022 in commercial real estate, what would you identify?

00:04:33 On Screen: What lies ahead? Sustainability - Resilience, Adaptability, Technology, Economic backdrop, Culture & Experience, Covenant Strength.

00:04:33 Yvonne Kiernan
I think adaptability, culture and experience, and technology. I mean, over the pandemic period we've seen changes to how people live, people shop. As I mentioned earlier on, retailers are changing their offering. They're offering more experiential retailing experiences to get people back into the bricks and mortar stores and office demand is changing as well. People are looking for more flexible space in order to have, you know, networking spaces, innovation spaces, spaces for collaboration.

00:04:58 On Screen: What lies ahead? Sustainability - Resilience, Adaptability, Technology, Economic backdrop, Culture & Experience, Covenant Strength.

00:04:58 Yvonne Kiernan
Also, resilience and covenant strength. As landlords we can see how important it is to have resilient properties in the fund, such as the retail parks that I've mentioned earlier on. But also, in terms of making sure that the tenants covenant strength is good and obviously our in-house charter surveyors are on-hand all the time, sort of keeping up communication with our current tenants particularly over the last couple of years. One of the most important factors, I think, going forward will be ESG, which is environmental, social and governance and it's going to be a key focus for investors and for occupiers during 2022. So, what we're going to see is a gap between what we call a green premium for properties, modern properties with good ESG credentials and a brown discount for older non-performing properties, and I think it's going to be a key focus for investors, for funding, for developers and for occupiers in the coming year.

00:05:50 Suzie Nolan
I think, Yvonne, you hit on a key point there around adaptability. We've all become very adaptable over the last two years between working from home, home schooling, isolating, social distancing, but I do think it's also very important for landlords and tenants to be adaptable going forward and I think that's something Aviva can really bring to the table as a landlord. So, I suppose my 3 key take-aways from what you've just said, Yvonne, are sustainability, adaptability, and resilience. So, if anybody would like to learn more about the commercial real estate market, or indeed the fund itself, please contact your financial broker.

00:06:34 Video ends.

00:00:00 Video Starts

00:00:08 Suzie Nolan, Head of Property Fund Management, Aviva Ireland
So we are out here in Blackrock in South County Dublin and behind me here we have three of the properties that are in our fund. So, we have Zurich House, Trident House and Blackrock Village Centre. I’m joined here today by Patrick Roe, our Head of Planning & Development. So, Patrick can you tell us firstly about the Zurich House redevelopment. Obviously, you oversaw that project, so can you talk about the project you implemented there?

00:00:30 Patrick Roe, Head of Planning Development
Well originally that was a 32,000 square feet office building constructed in the 1980’s. So, we demolished it and replaced it with 75,000 square feet of grade A office space. We managed to achieve that by bringing the façade of the building right out to the roadside behind us here, doing that by still keeping the car parking underneath the building. The building itself was designed with a sustainability focus and it did achieve LEED gold certification upon completion.

00:01:00 Suzie Nolan
That’s obviously really important for Aviva as a landlord because Aviva the company is on that Net Zero 2040 journey so that’s fantastic, and I suppose the important thing as well for customers is that you de-risk the project by having an agreement for leasing in place with the tenant, Zurich. We now have long term income in place with Zurich which is excellent, and that project, Patrick, was great in terms of return. So, a capital return of 37% and increased the rent level by 265%, which is very impressive.

00:01:21 On Screen: *37% from commencement of development in 2017 to November 2021. Warning: Past performance is not a reliable guide to future performance.

00:01:29 Suzie Nolan
So then down the other end of the properties here behind us, Patrick, we have the white and gray building known as Trident House, so that obviously wasn’t a major redevelopment like Zurich House in that the physical structure remained the same; it was more like a heavy refurbishment. Can you explain to us what you did there in Trident House?

00:01:43 Patrick Roe
Well that was much smaller than Zurich House, around 18,000 square feet, but it has very good floor to ceiling height, so it lent itself to a refurbishment. There, we introduced a new ventilation system, new heating, new passenger lifts, and done a full internal refurbishment including to the common areas. That was designed with a sustainability focus as well, and that project achieved lead gold certification, similar to Zurich House, when it was completed.

00:02:10 Suzie Nolan
And also in Trident House we have a different arm of Zurich in there as a tenant, and again, good quality, long term income. Again, really impressive returns there with a capital return of 23% and an increase in rent level compared to, I suppose, the market rent of the vacant building beforehand, an increase of 66%, which is really impressive.

00:02:18 On Screen: *From pre-development in April 2018 to October 2021 valuation. **Comparing market rent on vacant building (April 2018) to fully let building (March 2019). Warning: Past performance is not a reliable guide to future performance.

00:02:28 Suzie Nolan
So in between the two offices, Patrick, we have the most recently completed project, which is Blackrock Village Centre, which is the shopping centre, or the retail component. So, we can see here the lovely new façade, or the entrance way, and above that there are, in fact, three stories of office space as well, which ultimately we can let up going forward and drive further value for the fund. Maybe we can go over to the shopping centre now and take a look inside and see the changes that you’ve made. So, Patrick, we’re now inside the newly upgraded Blackrock Village Centre, which looks fantastic. Can you talk us through, I suppose, some of the main changes that were made through the redevelopment project?

00:03:04 Patrick Roe
Well we constructed a new roof you can see above us here now, we relocated the travelators, we improved sightlines, greatly improving the visibility of retail units throughout the centre. We’ve also built seven new retail units and extended a further six retail units. There are also three floors of office space now above the shopping centre available for let.

00:03:28 Suzie Nolan
And when we talked about the two office buildings earlier on, you spoke about a sustainability angle. Is there any sustainability play here in terms of the retail space?

00:03:36 Patrick Roe
Well all of the lighting throughout the shopping centre and the car parks is now LED lighting. We have improved the waste management facilities on site. There’s natural ventilation throughout the malls, around the perimeter of the new roof above us. And we’ve also installed e-charging points for cars in the customer car parks.

00:03:56 Suzie Nolan
So here in the village centre, obviously, we can see there are lots of attractive tenants, it’s a really good tenant mix here, but, I suppose, retail in general has gotten some negative publicity in recent times, particularly obviously, in light of Covid back in March 2020, many retailers had to shut down almost overnight. So, I suppose, it’s impressive here that Blackrock Village Centre has remained relatively resilient during both the pandemic and obviously the construction works that were ongoing. Obviously, it’s home to some essential retailers, such as the grocery store and, indeed, the pharmacy, but it also has lots of amenities that people can’t get online. So, things like, I suppose, your barber shop, or your beauty salon, or your key cutting, or your dry cleaning. So, it’s proven a really good, I suppose, amenity hub for the local catchment area. Can you talk us through, I suppose, the existing tenant mix, but also any ongoing letting activity here at the moment?

00:04:43 Patrick Roe
Well, we are anchored here by SuperValu, which behind us is Musgrave SuperValu’s flagship store. Existing retailers have signed new leases or the last couple of years, such as Lloyd’s pharmacy, Dubray Books, l’Occitane, and recently, Holland and Barrett have doubled their footprint. Behind us here is their first interactive store in Ireland. We’ve recently signed leases with Butlers Chocolates, for coffeeshop, Michael’s Restaurant, and Pulet Bonne Femme, and they’re due to open in the coming months. We also have a number of ongoing negotiations with potential other new entrants for some of the vacant retail units.

00:05:23 Suzie Nolan
Okay that’s fantastic, and obviously as that letting activity progresses, Patrick, that’ll drive further value for the fund and obviously long-term income, all of which will flow through to the unit price, which is obviously a positive for our customers.

00:05:26 On Screen: Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment can go down as well as up. Warning: If you invest in this fund you may lose some or all of the money you invest.

00:05:35 Suzie Nolan
So I suppose, in terms of the development project down here, Patrick, that really wrapped up just a few weeks ago now, and as our Head of Planning and Development, I suppose, what do you have up your sleeve to drive value going forward?

00:05:45 Patrick Roe
The next project is at our holdings on the corner of Coppinger Row and South William Street. We plan to construct a restaurant space at ground and basement level, and then office floors within the listed structures on South William Street. So that’s the next project on the agenda.

00:06:03 Suzie Nolan
And again, much like Blackrock, obviously that will drive further value for the fund as that project progresses and ultimately the space is let up.

00:06:23 Video Ends

00:00:00 Video starts

00:00:12 Suzie Nolan, Head of Property Fund Management, Aviva Ireland
The industrial sector is one of the main sectors in commercial real estate here in Ireland and, indeed, globally, alongside retail and office.

00:00:19 On Screen: Source: Aviva Life & Pensions to 31 December 2021. Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment can go down as well as up. Warning: If you invest in this fund you may lose some or all of the money you invest.

00:00:19 Suzie Nolan
The industrial sector has had a really strong performance recently and there’s a couple of key reasons or demand drivers for that. So, two main ones, I suppose, there’s Brexit and online shopping. And Brexit and online shopping have meant that suppliers need, what we call, in-country locations, so they need distribution centres in countries so that, I suppose, they can have quick lead times getting their products out to market. So that has led to an increase in demand and therefore an increase in the rental levels actually in the industrial sector. So, the sector has had a really positive, I suppose, 12 or 18 months now at this stage and it’s on a positive trajectory going forward, or so it would seem. There is a supply-demand imbalance; there isn’t a huge amount of new stock coming on stream and indeed new stock in good quality locations, which is hugely important for distribution as you can imagine. So, we’re here today outside one of our own industrial assets, Zeus Packaging, in Greenogue, in Rathcoole, in Dublin. So, Jenny is the asset manager here. Jenny, can you tell us a little bit about the building?

00:01:14 Jenny Donnelly, Asset Manager, Aviva Ireland
Yeah so the building, was constructed in 2009. It’s a high quality, detached industrial unit. It extends to just over 100,000 square feet. You’ll see at the front there’s a full height atrium leading into four stories of offices, and then obviously you also have your traditional industrial space.

00:01:31 Suzie Nolan
Now we’ve said high quality, Jenny, so what makes an asset such as this high quality from a tenant, or indeed, an investors perspective?

00:01:37 Jenny Donnelly
Yeah, I mean, from an investor or an occupier perspective, things they look at, in looking at an industrial asset, would be eave height. So here we have about 13 metres eave heights. We have five loading bays for dock levellers, and a marshalling yard, which just allows trucks to come in and out that bit easier. In terms of location, obviously when looking at an industrial asset location is obviously key in terms of logistics, so it’s about a two-minute drive from the M7 motorway and about ten minutes from the M50. There’s also a number of surrounding occupiers here in the park. You’ve the likes of Univar, Emo Oil, Dyson, and McCambridge Fine Foods, so it’s a well-known business park.

00:02:14 Suzie Nolan
Excellent, thanks Jenny. And we’ve talked about our own tenant here, Zeus Packaging, so Zeus is a really good quality tenant, or covenant as we might say, and they have 17, or just under 17 years left on the lease. So, it’s a really good quality tenant with a long lease in place, which is really important for the fund. Can you tell us a little about what Zeus Packaging actually does?

00:02:31 Jenny Donnelly
Absolutely. Zeus was founded in 1998, the largest privately owned, Irish packaging company in Europe. Greenogue here is their Ireland headquarters. They employ about 670 staff. The products they do, they specialise in the food and retail sector supplying products such as coffee cups, salad containers, cutlery, food supplies, so a number of different products. They are an extremely environmentally conscious and sustainable tenant with a focus on hygiene, so very much mirrors our Aviva policies in terms of our Net Zero journey. So, we’re very proud to have them as a tenant and be, I suppose, on this journey with them. The chief executive actually just won recently the EY entrepreneur of the year, so just, I suppose really, shows how innovative and the growth of the company.

00:03:16 Suzie Nolan
Thanks, Jenny. It’s fantastic, you know, I love to hear when our tenants are on that same sustainable journey as Aviva, as you said mirroring our corporate goals, which is really important for us. So, I suppose, in summary it’s a really good quality asset, as you said good quality industrial traits in terms of eave heights, marshalling yards and everything else, super quality covenant, or tenant, in Zeus Packaging and long income. So, in terms of asset management strategies between core, value add and redevelopment, it fits into that core strategy which is really the bedrock of the strategy of the fund. So really good quality, long term income for our customers.

00:04:00 Video ends

00:00:00 Video Starts

00:00:08 Suzie Nolan, Head of Property Fund Management, Aviva Ireland
The retail sector has received some negative publicity in recent years, particularly in light of the various covid related lockdowns. Obviously, retail had to close almost overnight in March 2020 and that was very difficult for many retailers, and as a result the value of retail has taken a bit of a hit. However, I think it’s really important to emphasise the different subsectors of retail, because they have performed differently, not just in recent years, because there are very different demand drivers for different types of retail. So, you have your high street, which is typically, I suppose, footfall is driven by tourism and by local offices, you have your local shopping centres, and then you have retail parks.

00:00:41 On Screen: Source: MSCI/SCSI Quarterly Property Index Q4 2021 31 December 2021. Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment can go down as well as up. Warning: If you invest in this fund you may lose some or all of the money you invest.

00:00:41 Suzie Nolan
So retail parks have been the out-performing subsector of retail in the last couple of years, particularly since Covid, but, I suppose, we invested in retail parks long before Covid, and there was a very good reason for that. Retail parks are typically defensive to online retail or online shopping, because the kind of things that you buy in retail parks you don’t tend to buy online. I mean, for example, you’re going to buy a couch in a retail park, you’re going to want to sit on that, if you order that online you can’t test it before you buy it, similar to touching your carpet and buying your fresh plants in a DIY store. So, that’s why we invested into retail parks initially back in 2015 – 2016, but since Covid has hit, retail parks have proven a very resilient subsector. And again, the reason for that is, firstly, they tend to be home or house essential retailers, so those kind of retailers that stayed open during the various lockdowns. But also, I suppose, they’re also very well laid out in terms of new social guidelines, in terms of social distancing, queuing systems and also they have car parks, so you can drive there and don’t have to travel on public transport. So, we have three retails parks in our fund, and we are here today in one of them; our Kilkenny retail park, and I’m joined by Jenny Donnelly, our Asset Manager. So, Jenny, obviously we’re here in Kilkenny retail park, can you tell me a little bit about the location of this retail park and why location is important?

00:01:54 Jenny Donnelly, Asset Manager, Aviva Ireland
Yeah, I suppose, the location here is key, just on the outskirts of Kilkenny city and off the M9 motorway, it’s also very easily accessible as well with over 700 carpark spaces. In terms of location and, I suppose, for a retail park really what’s key is the catchment, the surrounding area. So here, I suppose, it’s very densely populated in terms of residential developments. More so than ever, people are doing home improvements and DIY, so we can facilitate that here with our tenants in the means of, as you mentioned, your couches, your furnishings, your gardens, your electricals. So, it ticks a lot of boxes, so location really is key.

00:02:29 Suzie Nolan
Can you tell us a little bit about the physical structure and the layout of the retail park?

00:02:33 Jenny Donnelly
Yeah so, the park itself was constructed in 2004, it’s the only purpose-built retail park in Kilkenny. It’s approximately 143,000 square feet. There is 11 units, you also have the Costa coffee pod and the KFC drive thru. In terms of layout, each unit is over ground and first floor, predominately, obviously, retail space. There is some backup storage and office space in each unit, and some also incorporate a mezzanine then also.

00:02:58 Suzie Nolan
Perfect, okay, and then I suppose, as a landlord, we have some responsibilities here in the retail park as well. Can you touch on those responsibilities?

00:03:05 Jenny Donnelly
Yeah, absolutely. So, I suppose, the tenant is responsible for the upkeep of their unit, as landlord then responsible for any of the common areas including the car park as well. Then in terms of relettings or the tenancy mix, we as landlord would be responsible for that as well.

00:03:18 Suzie Nolan
Okay and the tenancy mix, Jenny, is obviously really important, I mean, what we want to have is complementary retailers here, which would obviously increase the footfall, or the number of customers that are actually coming to the retail park, and then when you have the likes of a Costa coffee, or indeed, a KFC, that can help increase the dwell time, or how long people actually stay in the retail park, which is also really important. It’s also important in terms of attracting new tenants. So, I suppose, in relation to that, Jenny, is there much letting activity going on here at the moment or do we have much vacancy here in the retail park.

00:03:45 Jenny Donnelly
Yeah, absolutely, occupier demand is very strong at the moment. In terms of vacancy, you’ll see it’s pretty much fully let, with the exception of the Halfords unit, who, as part of their Irish and UK rationalisation program, have exited this particular store.* they are on the hook rent-wise until the end of the year, and, I suppose, without saying too much, we are in the advanced stages with a well-known retailer on that particular unit, which ultimately reduces the void for the landlord, and you know, any reletting risks to ultimately the policy holder.

00:04:00 On Screen: *Until Q4 2022.

00:04:14 Suzie Nolan
Excellent. Now that’s really important obviously, because when we do have vacant units, Jenny, I suppose, the cost of that vacant period flows through into the unit price, and as you said, negatively impacts the policy holder at the end of the day, so great that it seems to be possible here to minimise that time where we may have little or no vacancies. So that’s super. We touched on Costa coffee, so the Costa coffee pod unit, as you called it, is in the car park here, and that’s actually a unit we added ourselves as landlords, so we built that after we acquired the retail park. Do we have any other value add initiatives for the retail park that we can implement in the coming months or years?

00:04:16 On Screen: Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment can go down as well as up. Warning: If you invest in this fund, you may lose some or all of the money you invest.

00:04:48 Jenny Donnelly
Yeah, absolutely, I suppose, priority is obviously getting the Halfords unit relet and getting it signed up and the new tenant in. In terms of development, it’s obviously ongoing in terms of our review of that, we are looking at potentially maybe putting another retail unit in the park. As you mentioned, the coffee pod has proven very successful. There’s a number of food and beverage operators looking for that kind of a pod type space, so that’s something we’re definitely looking into as well. We’re very conscious in terms of sustainability also within the park and looking at potential projects we can do to enhance and help sustainability, such as putting e-chargers in the car park.

00:05:21 Suzie Nolan
Just as you mention that Halfords letting again, I suppose, at the moment the value of that unit within the retail park, the capital value, is slightly suppressed, because obviously we only have a short term left with Halfords and when we get that new tenant in, as you said in terms of value add, that new tenant will have a longer lease and that will ultimately increase the value of the unit as well as, obviously, driving longer term income for the fund, which is fantastic. In general, the retail park is in a really good place right now, both in terms of physical location, and obviously, in terms of performance. So, at the moment it falls into our core assets, so when we talk about asset management, there’s core, value add and redevelopment, and this at the moment is obviously a core asset, but with some potential value add angles in the future, and obviously with an eye on sustainability as you said.

00:05:49 On Screen: Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment can go down as well as up. Warning: If you invest in this fund you may lose some or all of the money you invest.

00:06:16 Video ends.