The year 2022 will go down as a turbulent one for investment markets globally. After an initial bout of positivity as economies shook off lockdown restrictions and pent-up demand was unleashed in the wake of the Covid-19 pandemic, the mood music swiftly changed. The war in Ukraine and pronounced energy-price inflation took markets by surprise. Swift and aggressive interest rate hikes and volatility within the debt market filtered into sentiment, pricing and ultimately into deal flow. Swap rates and government bond yields spiked and presented a challenge for real estate investors across the market.
While pricing on real estate assets in Europe started to move out in the second quarter, it was not until the third quarter that asset pricing in Dublin started to feel the effects. We began to see yield expansion on core sectors in the Irish market for the first time in many years. Notably, prime Dublin yields across the office, industrial and logistics and residential sectors have typically traded at a higher yield than that of European peers. And this has offered some downside protection this year, as we have seen Irish asset pricing move by a proportionally milder amount compared to assets in other European markets.
From a transactional perspective, the Irish investment market showed remarkable resilience during the year, and while pricing and deal flow have been affected to an extent, investment volumes for the full year 2022 will turn out to be very strong. In the second quarter, we saw the completion of the sale of the last listed Irish commercial real estate investment trust, when Hibernia Reit plc sold to Brookfield Asset Management, undoubtedly the most notable trade of the year. CBRE Ireland advised on several other high-profile office investment sales during the year, including the sale of the Watermarque Building in Dublin 4 for more than €92 million to French investor Corum in the second quarter, and the sale of the Eight Building in Dublin 8 to German investor Patrizia for about €60 million in the third quarter. The completion of the €500 million sale to Blackstone of Salesforce’s new European headquarters office at Spencer Place also bolstered total annual investment volumes.
The labour market remains in an incredibly healthy state and while there will undoubtedly be economic pressures in the coming year, the country’s finances are well-positioned to weather a global slowdown
Notably, the residential sector also saw a number of high-value trades complete, including during the third quarter of the year, when the cost and availability of debt was proving a challenge for most investors. CBRE Ireland advised German-headquartered Union Investment on the forward-purchase of 140 one- and two-bed apartments at Newtown Gardens in Blackrock during this period. Again, this transaction, and others that completed during the third quarter, is a reflection on both the strength of the investment case for Irish residential assets, but also the strength of the capital base of institutional investors into Ireland. Many of the most active investors into the Irish market are pension and mutual funds, using equity capital and a low degree of leverage in acquisitions.
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Ireland as a sovereign has outperformed its European peers in 2022 as our credit credentials improved on the back of robust tax revenues. In recent weeks, S&P Global Ratings have rewarded this fiscal performance and the Irish debt/income trajectory by raising the outlook for Irish debt from “Stable” to “Positive”, and reaffirming an “AA-” rating – something investors take note of during a challenging period for global sovereign balance sheets. The strength of the Irish economy continues to be remarkable. The labour market remains in an incredibly healthy state and while there will undoubtedly be economic pressures in the coming year, the country’s finances are well-positioned to weather a global slowdown. We expect the Irish economy to prove itself resilient in 2023 and the strength of the Irish investment case, across commercial properties sectors, will continue to attract capital inflows.
Myles Clarke is managing director at CBRE Ireland
