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June 20, 2024
PI Global Investments

Investment in Irish commercial property hit record low in 2023

It said “myriad headwinds impeded activity”, including higher interest rates, while lay-offs by tech companies and the increased popularity of remote working pushed up vacancy rates in the office sector.

Just 126 commercial deals closed over the year, with only 2pc of these valued at €100m or more, compared to 6pc of that value in both 2021 and 2022. The decline was to be expected, given the higher cost of borrowing, the estate agent pointed out.

‘Failure to meet sustainability criteria will result in a devaluation of assets’

A report by Lisney earlier this week found that the headline office vacancy rate across Dublin at the end of last year was almost 16pc – the highest level since 2013. The property-advisory company noted that the number of staff returning to the office is now growing, which should provide businesses with greater certainty on their space requirements.

Apart from high interest rates and changing occupier trends, the cost associated with implementing sustainability measures will mean a subdued investment sector for much of this year, Lisney predicted.

“From an investment point of view, the office sector was the least active of the four key market sectors, with changing occupier requirements since the pandemic, and concerns about some buildings (BER of B3 or lower) becoming stranded assets – too modern to financially justify upgrading works but not meeting required standards – acting as key challenges,” Lisney reported.

“In addition, with no new office buildings due in 2026 and beyond, this supply will not meet demand for A-rated/zero-emission buildings arising from occupiers’ 2030 ESG commitments.”

Lisney said the influence of ESG criteria (environmental, social, and corporate governance) on market demand is only going to intensify. EU directives will continue to tighten, in order to achieve a climate-neutral building stock by 2050.

‘Investment property may experience a recovery in the second half of the year’

“Failure to meet sustainability criteria will result in a devaluation of assets,” it said. “This is already beginning to materialise.”

Among the bigger commercial deals completed in 2023 were Pontegadea, a Spanish firm, paying just over €100m for a group of 120 luxury rental apartments in Dublin docklands.

M&G Real Estate, a London firm, bought a buy-to-let apartment building in Donnybrook for just under €100m.

Among the other noteworthy transactions was the purchase of 156 apartments around Dublin for €75m by US investors Franklin Templeton.

Sherry FitzGerald’s analysis is that the investment property market may experience recovery in the second half of the year, when the ECB is likely to have cut lending rates.

Ross Harris, director of commercial and residential investment at Sherry FitzGerald, said: “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 the Government around policy and intervention could also assist in driving investment activity across all asset classes.”

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