According to a report by BNP Paribas Real Estate Ireland (BNPPRE), 2022 was an exceptionally strong year for Ireland’s investment property market, with €5.6bn worth of rent-producing assets traded. This was the second-highest level of spending ever recorded, just behind the €7.42bn traded in 2019, and up 1.7% from 2021 levels. However, the report warns that activity slowed sharply towards the end of the year, and a more moderate trading year is expected in 2023.
The report shows that offices accounted for the biggest share of the year’s spending for the first time since 2019, with €1.73bn of assets trading. This is due to the rising office vacancy caused by the pandemic, with the market expected to peak in 2023. However, the report also states that the development pipeline is modest compared to previous cycles, and with Ireland’s economy forecast to continue outperforming, the overhang of vacant stock should start to come down from 2024.
Kenneth Rouse, Managing Director and Head of Capital Markets, explains, “There is strong demand for well-located, operationally efficient office assets that align with investors’ ESG criteria. New development will continue to provide buy-opportunities in 2023, but these low-carbon buildings will remain a relatively scarce commodity.”
In terms of residential investments, the report notes that attractive starting rents and strong demographic pressure continue to attract international capital to Ireland. However, rising debt costs and construction inflation are making forward-fund and forward purchase deals harder to achieve, and there will be a particular focus on standing assets where these become available to buy.
The report also highlights a stabilization in retail investment in 2022, with €359m of shops trading – the highest since 2019. Despite the challenges of online shopping, investors are increasingly moving into regional towns and cities where population density and the yield profile align to provide a value proposition.
Dr. John McCartney, Director of Research at BNPPRE, predicts that Ireland’s economy will continue to outperform in relative terms, but the overall rate of growth will slow. Furthermore, with further interest rate increases in the pipeline, 2023 is likely to see a return to more normal levels of investment property trading.
Overall, the report indicates that the Irish investment property market remains strong, but there are challenges to be aware of. The market is shifting towards a focus on ESG, low-carbon buildings, and standing assets. The economy is predicted to slow down, and the monetary tightening will have an impact on trading levels.
