If the commercial property market could have been described as The Good, The Bad, and the Ugly in 2023, then this year, the most fitting film might be All Quiet on the Western Front.
Despite all the noise, events unfolded as anticipated. Interest rates were cut globally, headline inflation was primarily contained, and most elections held throughout the year produced results that aligned with polling forecasts.
Similarly, when assessing real estate in Ireland, there were no significant shocks and bumps that we did not anticipate.
As anticipated, the first quarter recorded the lowest quarterly investment volumes in Ireland since 2012. The second and third quarters regained momentum, but traction was limited, and volumes for the year were €1.2 billion by the end of September, down 52.5 per cent from the 10-year average in the same period. Furthermore, investors had not been betting big this year, with only one deal surpassing the €100 million mark as of September. This is down 92.1 per cent on the five-year annual average from 2018 to 2022.
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Forecasting year-end volumes can be challenging in a small market such as Ireland, where one sizeable deal can move the dial significantly. Still, we are conservatively anticipating volumes to fall around the €2 billion mark for the year. However, this is subject to being revised upwards to about €2.5 billion if specific deals are signed this side of the new year.
Interest from retail investors was strong, with retail parks and shopping centres catching the eye of asset managers and private property companies. Private investors were particularly interested in unit shops on the high streets, attracted by the promise of favourable returns. As of September, the sector was 37 per cent of the market volumes for the year-to-date, with €471 million across 26 deals, and it now looks probable that the sector will surpass the €1 billion mark, resulting in the largest year for investment since 2016.
The office sector continues to trend below long-term averages but there are early signs that a foundation is being laid for a slow recovery. Volumes in the sector will likely remain subdued for the remainder of the year and into early 2025, with a scarcity of larger Grade A+/Grade A assets on the market. With diminished visibility due to a lack of transactions, pricing remains challenging.
The sector has had a rebound year for leasing in Dublin, and the market will likely have the year’s largest leasing event in Europe when Workday officially signs for more than 400,000 sq ft at College Square in Dublin 2. Annual leasing volumes will be the strongest since Covid-19 and will trend within the range of long-term pre-pandemic averages.
The living sector has been particularly affected by the current high interest rate environment, compounded by a series of regulatory own goals. These include a 2 per cent rent cap, a turgid planning system, and reactive policy changes.
The industrial sector is performing above the long-term averages but down from the higher level of investment recorded in 2021 and 2022, which were exceptional years.
Looking ahead, we anticipate 2025 to be a year of rebuilding, as the rate cuts over the past six months filter through. This will not happen overnight; but gradually, confidence will return to the market, potentially catalysed by a single large deal.
There are green shoots in the market. In particular, offices are positioned to rebound next year. We have long been banging the drum of flight-to-quality, where Grade A+ buildings will command higher prices and rents. With a dwindling pipeline of such space in the city, this building tier will be in high demand by the end of 2025. This will no longer be theoretical but a reality, setting up the sector to heat up again in 2026.
John Moran is chief executive of JLL in Ireland.
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