Sarah Winters is a director and head of CRM in TWM
Ireland’s CRE adapts to global challenges and sustainability
THE BUSINESS POST, 30 NOVEMBER 2024
French Investor, Arkéa, made its debut in the Irish real estate market in 2024 with the completion of several assets. In June, it paid €20.5 million for Citypoint mixed-use investment in Galway city
Sarah Winters
Following a tumultuous few years marked by the pandemic, inflationary pressures, and geopolitical volatility and uncertainty, Ireland’s commercial real estate sector is showing resilience due to strong economic performance, drawing domestic and international investors while adapting to evolving trends in business, work and consumer behaviour.
Ireland’s GDP is expected to contract by 0.5 per cent in 2024, with growth rebounding to 4 per cent in 2025 and 3.6 per cent in 2026, as published by the European Commission.
Unemployment is forecast to remain low though skill shortages may put pressure on the labour market. These challenges are likely to impact the Irish real estate market, particularly with regard to housing, where supply continues to fall short of demand.
In the first half of 2024, the sector continued to feel the impact of high inflation and elevated interest rates, mirroring the conditions of 2023, with a particularly subdued Q1 having only €162 million transacted across 20 deals.
However, as the year progressed, activity picked up, with €514 million and €595 million transacted in Q2 and Q3 respectively, although both still fell short of their ten-year averages.
The final quarter is typically the busiest and while the final year volume remains to be seen, with a projected total transaction volume of about €2 billion for year end, this will land well short of the €4.1 billion ten-year average.
The French have consistently been the most active of the foreign investors over the past two years, which has continued in 2024. Driven by higher yields and value add, we have seen many new French entrants to the market this year who aren’t married to the Dublin market and will look at good quality assets regionally.
Arkea was one such entrant, which completed its first two transactions in Q2, namely Plantation House, Dublin 2 for €7.19 million and Citypoint in Galway which it purchased for €20.5 million, where TWM was a joint agent.
Deka Immobilien and KGAL, both German institutional investors, have made substantial purchases. The largest industrial transaction saw Deka purchase logistics units in Ashbourne, Co Meath in a €70 million sale and leaseback transaction with Primeline. KGAL purchased Shackleton Park, Lucan PRS scheme for €42 million.
Despite a somewhat cautious investment environment, there has been continued interest from both domestic and international investors, with certain prime assets still attracting significant attention.
Notably, 40 Molesworth Street in Dublin, also purchased by Deka, was completed at a yield of about 5.17 per cent in Q2, which served as a key pricing benchmark for the prime office market.
The retail sector remains under pressure in secondary locations, as consumers increasingly move online. However, prime retail assets in well-positioned areas are still attracting interest.
High profile shopping centre sales throughout 2024 include the Square Shopping Centre in Tallaght, acquired by Eagle Street for €130 million; and Blanchardstown Shopping Centre is said to have exchanged contracts with a US investor at a price in the region of €600 million.
As we approach the end of 2024 and look toward 2025, there is a growing sense that investment market conditions are slowly improving.
The European Central Bank’s potential interest rate cuts, coupled with projected stabilising inflation in the EU over the next 12 months, will help to build investor confidence. Global stability will also play a key role in supporting the market. While the gap between vendor and purchaser expectations persists across many sectors, it continues to narrow.
In 2024, there have been few debt buyers, with most investors opting to close transactions in cash. However, as interest rates decrease, debt-financing is expected to return, resulting positively in the market, particularly for European investors who are more reliant on debt.
Donald Trump’s return to the role of US president and talk of trade tariffs could pose a risk to foreign direct investment in 2025, though this remains to be seen.
Sustainability will continue to dominate the real estate market, as the ‘drive to net zero’ continues, with both investors and occupiers facing ambitious ESG targets.
Green credentials are becoming a priority, and the ‘flight to quality’ is putting pressure on secondary assets, at risk from becoming ‘stranded’ in the years ahead. This has prompted assessment for repurposing of older properties to alternative uses, as owners focus on creating sustainable, high-quality environments.
2025 is expected to see occupiers and opportunistic investors acquiring real estate that offers good growth potential, with a particular emphasis on sustainability and long-term value.