As a new real estate cycle begins to take shape and as 2024 draws to a close, there are several reasons for the market to be cheerful.
This year began with historically weak investor demand, but confidence or “sentiment” has improved in each quarter since. This is best evidenced by looking at investment spending. First-quarter total investor spend was just €160 million, the lowest quarterly turnover since the global financial crisis. This increased to €540 million in the second quarter and to €600 million in the third quarter. Full-year investment turnover is now forecast to be in the order of €2.5 billion, with fourth-quarter turnover expected to be more than twice as much as the third quarter.
Before the financial crisis, the Irish real estate market was almost exclusively driven by domestic capital, with some UK property companies and institutions and a small number of foreign private investors. This changed utterly post Nama, when international capital moved to take advantage of the significant price corrections across all sectors.
International capital now accounts for 73 per cent of the total capital invested here (post-financial crisis average). Notably absent in 2023, US private equity capital returned to the Irish market in 2024 with a number of sizeable acquisitions including Blanchardstown Centre, North Dock at North Wall Quay, and Scape Dublin. Their return is a welcome signal that the market has turned.
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After a number of years in the cold and firmly out of investment favour, retail is the most invested sector in Irish real estate in 2024. Retail high-street stores, once the preserve of the Irish and in turn foreign institutional ownership, are now switching to private investor ownership. Liquidity in the retail sector has benefitted enormously from significant price correction since 2017 on the one hand, and willing sellers on the other.
The office sector remains challenged and out of favour internationally. In Dublin, we face the current headwinds of high vacancy, tech slowdown and “open market” rent reviews. The majority of deals made in the past 12 months took cover in the form of long leases and secure cash flow. There was also a marked preference for central locations and profile buildings. The green shoots we witnessed in 2024 include the successful sales of older office stock such as Connaught House, 20 on Hatch and Kilmore House. The common thread here was assets that were priced to sell and an uplift in confidence as these assets were simply not trading one year ago. Eleven of 24 or almost half of all investment transactions in the third quarter were offices, the sectors highest share of deals on record.
Investor demand remains focused in this cycle on the holy trinity of “beds, meds and sheds”, but the reality is that these opportunities are in scarce supply in the Irish market. The challenges facing the residential market from a developer and an investor standpoint are well publicised. The student accommodation market here also suffers from a supply-demand imbalance, which has made the few dedicated PBSA or student assets in Ireland hugely attractive to international investors such as Hines. Healthcare is perhaps the most liquid sector in real estate at the moment, but opportunities are few and far between. Future supply is further tempered by the fact that the HSE is now looking at freehold, as well as leasehold options here. The industrial/logistics sector saw a return of many specialist investors to the market in 2024.
Peter Flanagan is managing director and head of capital markets at BNP Paribas Real Estate.
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