Commercial property investment falls to decade-low of €2bn in 2023 – report

Investment in the Irish commercial property market fell to just more than €2 billion last year, down from €4.7 billion previously and the lowest level seen in a decade, as higher interest rates and remote working dampened investor appetite, according to a report by estate agent Sherry FitzGerald.

The volume of transactions was also below average, with 126 deals closing during the 12-month period while 2 per cent were valued at €100 million or more compared to 6 per cent in the previous two years.

This was “not surprising” given the higher borrowing cost environment, the company said.

Investor spending on both office and residential assets fell substantially in 2023 to reach about 35 per cent of the levels recorded for 2022.

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“Continued severe shortages of accommodation has sustained interest in the residential market, although the impact of rental caps and higher interest rates is taking its toll,” Sherry FitzGerald economist Jean Behan noted.

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Despite the downturn, residential assets still represented the largest proportion of turnover in the sector at 28 per cent, or €563 million.

There were two large deals at the start of the year. Spanish firm Pontegadea paid €101 million for a portfolio of 120 luxury rental apartments in Dublin’s south docklands while London-listed M&G Real Estate purchased a buy-to-let apartment building at Eglinton Place in Donnybrook for €99.5 million. In the final quarter, US investor Franklin Templeton acquired a social housing portfolio of 156 apartments in various locations across Dublin for €75 million.

“It is important to note that there have also been numerous social housing acquisitions by State-backed bodies during the year but, given these transactions are largely off-market and not publicised, they are not reflected in these figures,” Sherry FitzGerald said.

The value of office assets totalled €384 million for the year, representing just under a fifth of total turnover, the lowest level on record for this asset class.

The company cited reduced space requirements following tech lay-offs earlier in the year and the impact of hybrid working, resulting in higher levels of vacancy, particularly of lower quality accommodation.

On a more positive note there were increases in both industrial and logistics, and retail assets, when compared to 2022 levels.

“A total of €2 billion [was] transacted during 2023 which is significantly down on previous years,” said Ross Harris, Sherry FitzGerald’s head of commercial and residential investment.

“Approximately 33 per cent of this year’s total traded in Q1, suggesting a significant level of 2023 trades were legacy transactions from 2022.

“Looking to this year and beyond, with ECB and FED base rates expected to reduce in mid/late 2024, expectations are that investment activity will increase to more normalised levels towards the back end of the year.

“Certainty from Government around policy and intervention could also assist in driving investment activity across all asset classes.”

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