Statement by Sherry FitzGerald Commercial Research
Monday, July 10th, 2023
Sherry FitzGerald, Ireland’s largest estate agent, reported today (Monday, July 10th, 2023) that transaction activity in the Irish commercial property market slowed considerably during the second quarter of the year reflecting the continued rise in borrowing costs since mid-2022. This is evidenced in both the volume and value of acquisitions, with only 26 transactions closing bringing turnover for the three-month period to €333 million, one of the lowest quarterly levels on record.
For the first half of the year, capital spend reached €985 million, less than half that seen for the same period in 2022, and similar to the level recorded during the first half of 2020 when the pandemic impeded market activity.
According to Jean Behan, Senior Economist, Sherry FitzGerald Research; “In line with expectations, the rising borrowing cost environment has played its part in muting investor activity in the Irish commercial property market during the first half of the year. This is particularly apparent in the size of transactions during the period with 58% in the €1 million to €10 million cohort. Only 11% of transactions exceeded €50 million, well below levels seen in recent years. Notably almost all of these took place in quarter one.”
Residential assets remained the key driver of investor activity accounting for 43% or €427 million of total capital spend during the six-month period. The retail sector is experiencing an uplift in investor interest with a further 20% or €199 million of capital invested in this asset class. Capital spend in office assets remained relatively weak equating to €130 million or 13% of total capital transacted.
Similar to previous years, Dublin continued to attract the largest share of investment turnover during the first half of the year at 69%. The regional centres of Galway and Cork each accounted for 4% and 3% of total investment turnover respectively. Overseas investors remain key players in the Irish market accounting for at least half of all capital transacted during the period.
According to the analysis, in line with trends seen during the first half of the year, investor activity is expected to remain subdued in the short term as interest rate uncertainty persists.
Commenting on the analysis, Ross Harris, Director of Commercial & Head of Residential Investment, Sherry FitzGerald said, “Given the increase in overall costs of funds, investor’s ability to utilise debt and remain competitive in a bidding process has become more constrained, which will likely result in a higher proportion of transactions completing on an all-equity basis”.
Demand for residential assets is expected to remain strong during the remainder of the year, underpinned by current market dynamics. That said, rising borrowing costs coupled with above average building and construction cost inflation, are likely to continue to dampen forward fund and forward commit structured investments in the short to medium term. Retail assets are also expected to attract strong investor interest buoyed by the strength of consumer expenditure and the historically high rate of employment.
Investment activity in the office sector is likely to remain suppressed in the medium term as occupiers continue to streamline their space requirements due to more flexible working arrangements. That said, demand for high quality, Grade A+ accommodation remains very strong. In particular, a growing need to achieve ESG targets and become more carbon neutral and energy efficient is becoming increasingly important for investors and tenants alike. This is changing the profile of investment transactions across all asset classes and will remain a feature of the market going forward. This will likely continue to place downward pressure on older stock values resulting in a “brown discount” as opposed to a “green premium”.
- ENDS -
For any further information, please contact:
Jill O’Neill
PR Director
Sherry FitzGerald Group
Ph: 01 2376 500 / 086 252 3277
