Despite all the uncertainties on which 2021 commenced, the Irish investment market displayed resilience throughout the year. Activity, as expected, was constrained in the opening quarter, as lockdown measures restricted the free flow of overseas and even domestic investors. However, as we moved through the summer and autumn periods, movement improved and with it, activity in the market.
Trends in the Irish market followed those witnessed across much of Europe, with residential and logistics driving the demand story. As of the third quarter, capital inflow to both sectors amounted to €1.9 billion. In both sectors we saw forward-commit style deals taking place.
Logistics investment will achieve record levels this year, while competitive bidding will see prime yields also contract to historic lows for the sector, at sub 4 per cent. This will also mark the first time since our yield series began that prime yields for industrial and logistics sit lower than prime high street, signalling a clear structural shift taking place in the market.
Beds, sheds and meds
Looking ahead to 2022, a number of key themes will shape the market. It is no surprise, that beds, sheds and meds will continue to be the focus. It is worth noting, however, that despite the diversification taking place, offices will also continue to feature strongly. Occupier demand in offices has turned, with funds across Europe continuing to signal offices as a target class. On the flip side, retail has struggled; however opportunities within the asset class is one to watch for next year.
Next year will also see the further prioritisation of environmental, social and governance (ESG) factors. Global recognition of climate change and the physical risks associated with it have driven up investment in green buildings and clean energy infrastructure. Investors are under pressure from their stakeholders for transparency around their portfolio decisions. This “long-term social value” phrase is expected to be a big factor when considering an investment.
Leading from this, 2022 should also see pricing come to the fore and in particular, the notion of the “green premium and brown discount”. We believe the focus will lie more so on “brown discount” as pricing for older stock is moving out and will continue to do so due to the costs associated with refurbishments.
Another one to watch for 2022 is merger and acquisition (M&A) activity. The market has already recorded some examples of this. For example, the acquisition of M7 Real Estate by Oxford Properties and more recently, the reported ongoing acquisition of Yew Grove Reit by Slate. This M&A activity is providing big capital sources a platform to enter and grow within markets.
Finally, the outlook for 2022 is bright. Although Covid-19 and the uncertainties which accompany it will continue into the new year, there is no denying the substantial volume of capital looking to be deployed into real estate. This rising liquidity is bringing new investors to the market, with inquiries from new sources such as Australia, Singapore and Israel evident. In the past, these sources would have typically looked to London and other European cities to invest.
Aidan Gavin is managing director at Cushman & Wakefield, Ireland
