“2023 saw commercial property investment fall to the lowest level in a decade at just over €2 billion, but activity levels are expected to pick up in 2024 with the anticipated reductions in interest rates expected later in the year."
Statement by Sherry FitzGerald Commercial Research
Thursday, January 11th, 2024
Sherry FitzGerald, Ireland’s largest estate agent, reported today (Thursday, January 11th, 2024) that investment turnover in the Irish commercial property market totalled just over €2 billion in 2023, the lowest level seen in a decade following a myriad of headwinds that impeded activity. Although capital spend did increase during the final quarter to reach €548 million, this remains well below the long-term average, continuing the trend seen since the end of 2022.
Not all asset classes witnessed reduced levels of activity however, with increases seen in both industrial and logistics, and retail assets, when compared to 2022 levels. Investment in industrial and logistics assets rose by 18% in 2023 to reach €520 million, the second highest level on record. As a result, this asset class accounted for the second largest share of turnover during the year at 26%. The majority of this comprised only two transactions, the largest of which was the significant €225 million sale of phase two of Baldonnell Business Park to Pontegadea in quarter four.
Retail assets also experienced a considerable uplift of 24% in the value of transactions during the year to reach €410 million, accounting for a fifth of total capital spend in 2023.
In contrast, investor spend in both office and residential assets fell significantly in 2023 to reach approximately 35% of the levels recorded for 2022.
Despite this, residential assets continued to absorb the largest proportion of turnover in 2023, at 28% or €563 million. The majority of this, 52%, comprised three transactions that took place in the opening months of the year. There was also one large transaction in the final quarter, consisting of the acquisition of a social housing portfolio of 156 apartments in various locations across Dublin by US investor Franklin Templeton 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.
The value of office assets totalled €384 million for the year, representing 19% of total turnover, the lowest level on record for this asset class. This reflects reduced space requirements following tech layoffs earlier in the year and the impact of hybrid working, resulting in higher levels of vacancy, particularly of lower quality accommodation.
According to Jean Behan, Senior Economist, Sherry FitzGerald Research; “as expected, factors that impacted investor activity since the beginning of the year continued into the final quarter. That said, it is clear from the figures that the resilience of the domestic economy, with record employment levels and strong consumer spending is underpinning investor demand for retail and logistic assets. Similarly, 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.”
The volume of transactions was also below average with 126 deals closing during the twelve-month period. Not surprising, given the higher borrowing cost environment, only 2% of transactions were valued at €100m or greater, compared to 6% in the previous two years. The majority of acquisitions that closed during 2023, 78%, were valued under €20 million, compared to 65% of all transactions in 2022 and 2021.
Commenting on market activity, Ross Harris, Director, Commercial & Residential Investment, Sherry FitzGerald said “A total of €2 bn transacted during 2023 which is significantly down on previous years. Approximately 33% 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.”
Looking to the year ahead, the investment market is likely to see a tentative recovery. Interest rates are now considered to be at the peak of the current cycle. However, while inflation has eased considerably over the past year, and growth in the Eurozone economy is now flat, inflation remains above the 2% target rate and inflationary pressures persist. Therefore, the ECB is likely to remain cautious and leave rates at their current level until mid-year. As a result, investor activity may remain below average in the short term before picking up in the second half of the year as borrowing costs start to fall.
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For any further information, please contact:
Jill O’Neill
PR Director
Sherry FitzGerald Group
Ph: 01 2376 500 / 086 252 3277
