While 2024 was another challenging year in Irish commercial real estate, it was an improvement on 2023, where the market was virtually stagnant.
Despite appearances, investment from the French property investment companies accounted for only 15 per cent of the overall spend year to date, due to such buyers deploying capital across other jurisdictions, availing of stronger returns and more choice. This trend is illustrated with only two deals completed in the third quarter — both offices, making up 6 per cent of total turnover within this period. In the same quarter in 2023, such buyers accounted for 31 per cent of turnover.
In contrast, domestic buyers were a dominant buyer throughout the year so far, accounting for 26 per cent of the overall spend, over 34 deals.
The average deal size in 2023 was €16 million — similarly, the average deal size for the last three quarters was €17 million. However, to note the average deal size for the top five deals in the third quarter was €74 million, which indicates that larger deals are on the horizon. By comparison, the average deal size was double in 2019 at €33 million.
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The average spend per year over the last 10 years was €4 billion, and it is expected at this point that the volume for 2024 will be substantially less, at about €2.3 billion — in the absence of large private rented sector (PRS) deals it is difficult to see any substantial increase in this number for the coming year.
We are working within a market with a limited pool of asset classes, namely retail, office and industrial with periodic nuances, such as purpose-built student accommodation in comparison to our European counterparts where the range is broader including hospitality, data centres, care homes, etc.
On the retail front, it is expected to be the top-performing asset class for the year, with a potential total spend above €1 billion. The demand for retail parks remains strong, with large pools of capital chasing a shallow supply.
The PRS market accounted for €10 billion of spend between 2018 and 2022, with more than 204 transactions. Year to date, it accounted for 55 per cent of the overall residential spend, or €139 million. Investors anticipate that the supply-and-demand imbalance, caused by population growth and housing availability and affordability issues, will support this sector for the foreseeable future, notwithstanding the lack of available stock.
The office sector showed an improvement with some €259 million invested to date on income-producing assets, with an estimated €300 million due to sign in the fourth quarter; by comparison, the total spend for 2023 was €386 million, which accounted for 21 per cent of the total turnover. The conversion of offices for alternative uses will be a big feature in the coming years.
Demand in the industrial and logistics segments is, and will remain, high. The limited supply of standard product is providing a solid backstop for values, leading more investors to explore specialised sub-sectors connected to the evolution of e-commerce and supply chains. Year-to-date spend is €186 million over 15 transactions; by comparison, the total spend for 2023 was €520 million over 24 transactions.
The demand for assets with long-term income and strong covenants, across all sectors, will continue to be the star performer.
Importantly, Ireland is now considered a core market and will continue to attract overseas buyers. New entrants continue to explore the Irish market for opportunities.
Michele McGarry is a director and head of capital markets at Colliers.
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