Irish investment market records lowest spend in 10 years, CBRE report finds

Investment in Ireland’s commercial property market hit a 10-year low in 2023, driven by higher interest rates and valuation declines.

However, while challenges are expected to remain over the year ahead, commercial property specialists CBRE point to “exceptional opportunity” in the sector over the next 12 months, “as yields and pricing start to bottom out and financing costs decline”.

According to CBRE Ireland’s outlook report for 2024, investment transactions in the Irish market amounted to €1.85 billion in 2023, the lowest level since 2013.

Myles Clarke, managing director at CBRE Ireland, said 2023 was “a very challenging year”, as tighter monetary conditions came to bear on market valuations. However, he expects a brighter year ahead.

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“Financial conditions have eased in the final quarter of the year, as inflation is falling faster than expected, pushing down yields in fixed income and equity markets. A continuance of this trend in 2024 will help support a recovery in real estate later in the year.”

Indeed activity is expected to be higher in 2024, driven by a decline in interest rates and more activity from private capital, but is likely to be still below the 10-year average of €4.3 billion.

Sectoral split

For the first year on record, the industrial and logistics sector attracted the most investment, accounting for 28 per cent of spend, followed by residential at 23 per cent, and retail at 22 per cent.

Investment in the Dublin office market was down by 50 per cent on a typical year, and the outlook is likely to remain challenging, with the vacancy rate expected to continue to rise. It reached close to 17 per cent at the end of 2023, its highest point since 2013, and CBRE expects it to rise further in the next 12 months, as 195,000sq m of new stock reaches completion, 35 per cent of which is pre-let.

Notable deals during the year included the National Transport Authority agreeing a 20-year lease at Haymarket House in Dublin 7, an A-rated building, and large lettings of grey space at the Cadenza Building in Dublin 2, and 124/127 St Stephen’s Green, respectively. This will have a knock-on impact on prime rents, which are expected to fall from €65 per square foot to €62.50 per square foot in 2024.

Build to rent

Residential investment was also slow during the year, with just €430 million in investment, and two deals of note. Previously, the market had been seeing up to 15 deals a year involving institutional investors.

According to the report, the State was the most active participant on the residential side, with an estimated 40-50 per cent of new dwelling completions in 2023 having been acquired or financed by the Government.

This trend will continue in 2024, CBRE says, with Approved Housing Bodies (AHBs) now the main acquirers of new apartment supply.

Investment in the industrial and logistics sector, meanwhile, continued to grow, at some €520 million, which was “marginally up” on 2022. It was, however, the sector which attracted the most investment for the first year on record. Leasing activity is expected to continue at a more “normalised level” over the year ahead, influenced in part by limited supply. A notable deal included the leasing of Building 2, Greenogue Logistics Park, in Rathcoole, Co Dublin, to Ikea/Wincanton.

Retail investment amounted to more than €400 million in 2023, its highest level since 2019, according to CBRE, and investment volumes in the sector could reach levels “not seen since before 2017″ over the coming year, the property specialist said.

Transaction volumes in the hotel market reached €240 million in 2023, with a further €75 million of hotel development site sales, according to the report. CBRE expects hotel transaction volumes to be significantly higher in 2024, with potentially “a record year of sales in store”, considering the number of ongoing, high-value sale processes.