“Persistent low activity levels suggest 2023 will be one of weaker years on record for Investment Property Market and Development Land Market.”
Statement by Sherry FitzGerald Commercial Research
Monday, October 9th, 2023
Sherry FitzGerald, Ireland’s largest estate agent, reported today (Monday, October 9th, 2023) that the Irish commercial property market continued to see below average transaction levels in both the investment and development land markets during quarter three.
Investment in Irish commercial property totalled €430 million during the three-month period. While this represents a marked 25% increase on quarter two, capital spend remains well below the long-term quarter three average of €788 million. In the development land market, the value of transactions was also well below average reaching €82 million, relatively unchanged from the previous quarter.
According to Jean Behan, Senior Economist, Sherry FitzGerald Research; “Given the current 22-year high in interest rates, it is no surprise that activity levels have been hindered in both markets. Additionally, the robust inflation in wholesale building and construction costs has compounded the issues, affecting the feasibility of developments and dampening forward fund and forward commit structured investments.”
Since the beginning of the year, investment turnover in Irish commercial property totalled €1.4 billion, a significant 64% reduction on the €3.9 billion recorded for the first nine months of 2022. During the same period, the value of land sold for development purposes reached €226 million, approximately half that recorded for the same period the previous year.
Furthermore, the volume of transactions in both markets in the year to date was down by just over a third compared to the corresponding period in 2022 with 57 development land sales and 91 investment sales closing during the period. This would suggest that 2023 looks set to be one of the weakest years on record in both markets.
The impact of the high borrowing cost environment was also evident by the relatively low volume of higher valued transactions in both markets compared to previous years. In the development land market, only 2% of all sales since the beginning of the year were valued at €15 million or greater, while in the investment market only 9% of acquisitions were €50 million or greater.
Despite this, it is worth noting that the development land market continues to see strong interest for sites with residential development potential. During the nine-month period these sites represented 67% of total turnover reflecting underlying dynamics in the residential market and the continued severe shortage of accommodation.
Commenting on market activity, Brian Carey, Commercial Director, Sherry FitzGerald said, “Looking forward, there is a general positive outlook in the development land market. The pool of purchasers is still quite strong while the draft Sustainable and Compact Settlement Guidelines has bolstered confidence. These guidelines should go some way towards improving the viability of sites where higher housing densities are appropriate given the location of the development.”
In the investment market, following a lull in transactions over the past three quarters, the office sector was the key driver of investor activity during quarter three accounting for 38% or €165 million of capital spend. This includes two acquisitions by French investor Corum Asset Management for approximately €114 million. Retails assets continued to attract considerable investor interest in quarter three representing a third of market turnover or €141 million.
Ross Harris, Director, Commercial & Residential Investment, Sherry FitzGerald noted, “The current climate has created opportunities for investors seeking value which will be particularly attractive to those with capital to refurbish or upgrade older stock. Meeting ESG objectives remains a key component of investment decisions with both investors and occupiers focused on energy efficiency and reducing their carbon footprint. This will continue to underpin demand going forward, buoyed by the increased availability of green loans offering favourable terms.”
Looking to the remainder of the year, Eurozone interest rates are now likely to have peaked given the continued decline in inflation and weak economic growth. This coupled with the considerable decline in building and construction cost inflation in recent months should help restore confidence in both markets. That said, both borrowing costs and building costs remain elevated suggesting that activity levels will remain below average in the short term.
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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
