Ireland is well-positioned to continue to attract international capital and new entrants – The Irish Times

With current 10-year government bond yields at 2.35 per cent, property still offers a risk premium, particularly for investments with rental growth potential
Michele Jackson

While 2022 was another year of global uncertainty, the Irish economy has proven to be resilient. The latest commentary from the OECD expects Ireland’s GDP for 2022 to expand by 10.1 per cent, which is well in advance of Irish and recent EU forecasts and puts Ireland top of the 38-member OECD league table. Although the GDP outlook is expected to slow from 3.8 per cent in 2023 to 3.3 per cent in 2024, the S&P Global Rating Agency raised its outlook on Ireland in November from stable to positive. The current view is that Ireland will avoid recession next year and continue to outperform other advanced economies while running budget surpluses through 2025.

The series of extraordinary world events will continue to present challenges and a high level of uncertainty for global economies. In response, we expect monetary policies will focus on further interest rate increases in an attempt to dampen inflationary pressures. Inflation in Ireland for 2022 looks set to hit 7.9 per cent, with a forecast for 2023 and 2024 of 3.2 per cent and 3.1 per cent respectively, according to data published by the European Commission. This compares to Euro Area forecasts of 9.3 per cent for 2022, seven per cent in 2023 and three per cent in 2024. Globally, inflation is forecast to hit 8.8 per cent in 2022 but to decline to 6.5 per cent in 2023 and to 4.1 per cent by 2024, according to the IMF.

The investment market turnover to Q3 2022 was €4.86 billion, and this compares favourably and is already above the last five- and 10-year averages of €4.4 billion and €3.6 billion respectively. TWM analysis shows approximately 80 per cent of deals done this year to date were acquired by overseas investors in a spread of euro, dollar and sterling currency. The average deal size was €37 million and the office sector accounted for 34 per cent of turnover, followed by the private residential sector at 30 per cent, mixed-use assets at 14 per cent and the industrial sector at 10 per cent. The dominant deal was the acquisition of Hibernia Reit’s €1.3 billion portfolio by the Canadian investor, Brookfield Asset Management.

Investors sitting on cash are looking for investment opportunities to mitigate the impact of high inflationary pressures on wealth erosion. With current 10-year government bond yields at 2.35 per cent, property still offers a risk premium, in particular for investments with rental growth potential. Geared investors’ positions will vary considerably depending on the terms of their existing debt and their appetite for new opportunities in the face of rising interest rates. These increased debt costs are likely to put more focus on the net initial yield position along with equivalent yields, with CPI-linked leases being particularly attractive to investors.

Real estate is a very diverse and nuanced asset class and pricing will be determined by the qualities of the individual property and how well it can be future-proofed to meet occupiers’ needs and ESG requirements. While opportunistic buyers may have an expectation of pricing movement, this is going to come down whether supply exceeds demand. Ireland is well positioned, relative to other jurisdictions, to continue to attract international capital and new entrants.

Michele Jackson is a director and co-owner of TWM