BUSINESS POST – PROPERTY YEAR IN REVIEW, DEC 2023

With the current uncertainty, there is a sense that interest rate stability and growth in the US is needed to give investors confidence

Michele Jackson

Eglinton Place in Donnybrook, Dublin 4, which was bought by M&G for €99 million in one of the most notable deals of the year

The Irish commercial property market is like a small boat in the choppy capital markets sea. The volatile political and economic landscape post-pandemic continues to impact the market and safeguarding assets to help weather the storm remains a priority.

The latest economic forecast for Ireland expects GDP to decline by 0.9 per cent in 2023 and grow by 3 per cent in 2024 and 3.4 per cent in 2025 from a peak growth rate of 8.1 per cent in 2022.

With high levels of uncertainty there is a sense that stability of interest rates and growth in the US is needed as a first step to give investors’ confidence.

This year saw a significant reduction in commercial investment activity volumes. The ten year average investment volume in Ireland was €4.13 billion and up to Q3 2023, the spend was €1.7 billion which reflects a decrease of 56 per cent from the same period last year.

The final quarter is usually the busiest and whilst the final year volume is unknown it will undoubtedly be significantly below the ten year average.

In particular, there will be a big reduction in transactions completed which are €100m+ with many planned 2023 sales being pushed out until 2024.

Key 2023 deals include the acquisition by Pontegadea (Spanish billionaire Amancio Ortega) of the Logistic Investment at Baldonnell Business Park in west Dublin for €225 million.

Opportunistic Irish investors are also looking for high yielding deals. Davy Real Estate acquired both the Hexagon shopping centre portfolio from Harcourt Developments for €74 million reflecting a net initial yield of 11.01 per cent and a capital value of €89psf, and the Marshes Shopping Centre, Dundalk for €29 million.

The residential investment market which has been a catalyst for strong real estate in investment volumes in the past number of years has been subdued. The most notable transactions are the acquisition of 6 Hanover Quay, Dublin 2 for €101 million also by Pontegadea and Eglinton Place, Dublin 4 by M&G for €99 million.

These deals were at the start of 2023 and yielded about 4 per cent. Notably owner occupiers have been active in the market which is evidenced by the acquisition of the North Earl Building, Dublin 1 by the HSE for €30 million or the acquisition of 8 St Stephen’s Green, Dublin 2 for €14 million. Demand is discerning and assets need to be priced to reflect rising interest rates.

Opportunistic investors and owner occupiers are attracted to deals where assets can be bought below build cost. Buyers look closely at the sustainability credentials of the buildings and assessing the level of capital expenditure to future proof a building is one of the greatest challenges.

In many cases the current market rents/uncertainty of occupier demand does not support the business case to undertake the works.

In particular, many dated office buildings are being looked at by the healthcare, hotel and educational sectors where demand remains strong and occupier demand is a key driver for growth.

2024 is likely to be a year where occupiers and opportunistic investors will be able to acquire real estate at levels which offer good growth potential.

Michele Jackson is a director at TWM