After A Slow Q2, Investors Are Waiting In Ireland’s Wings

The second quarter of 2023 was the weakest quarter for commercial real estate investment in Ireland since Q2 2017. In total, there were only 28 transactions worth €335M, which represents a decline of 74% year-on-year, Colliers Ireland’s Capital Markets Report Q2 2023 shows.

However, behind this low level of activity is a significant uptick in certain areas of the market that suggests more investment will take place in the second half of the year with the arrival of new investors. French funds alone invested a combined €85.5M across six transactions.  

“The French funds are here, and there are more of them coming,” Colliers Director of Capital Markets Michele McGarry said. “By the year end, we’re going to have more investors on the list of those that have acquired assets. Added to their activity is the fact that retail is back as a standout performer.”

In Q2 2023, retail investment accounted for 39% of turnover, which is incredibly strong, McGarry said. During the last five years, retail investment has totalled just 8% on average.

The top retail deal was U.S.-based Realty Income’s acquisition of City East Plaza Retail Park in Limerick and Blackwater Retail Park in Navan for a combined €45.9M. In second place was French investor Inter Gestion REIM’s acquisition of B&Q Liffey Valley for €26.6M.

Overseas investors from France, Germany and the U.S. accounted for 79% of retail investment turnover in Q2 2023, the remainder going to private Irish investors. 

While Realty Income acquires mainly retail properties, Inter Gestion’s acquisition suggests that other overseas investors are now seeking out retail opportunities over other asset classes, McGarry said.

“The profile of vendors is also interesting,” she said. “Several are Irish institutional funds, who own a large proportion of retail real estate. As funds seek to rebalance their portfolios with other asset classes, we expect more retail properties to come to market during the remainder of 2023.”

Investors are drawn to the strong performance of Ireland’s retail market, despite the tough economy. Consumer sentiment, which dropped significantly during the pandemic and ensuing geopolitical turbulence, had risen 13% by May 2023. Colliers’ H1 2023 Retail Market Report found that the value of core retail sales was up 5.5% on a seasonally adjusted basis.

“The occupational market is strong and that’s translating into strength in capital markets,” McGarry said. “While shopping centres remain more challenging, uptake has been good in retail parks and across high streets. Tourism is back to 2019 levels and people have been spending as if there’s no uncertainty in the economy.”

Residential was the second-best-performing sector, with €95M transacted across six deals. However, despite the ongoing housing crisis and demand for private rented sector properties, the market was restricted by high funding and construction costs, McGarry said.

The office sector saw a particularly low level of investment in Q2 2023, accounting for only 12% of activity. While sustainability is now a critical component of the investment decision-making process across all sectors, it has had a particular impact on the office market. Investors are universally seeking high-quality offices with a high level of sustainability, of which there are few available.  

Overall, McGarry said she expects to see further yield compression toward the year end, but investors will still be active.

“We’re still in a period of price discovery but not all vendors have accepted that,” she said. “If investors can get better value in other locations, such as Paris, they are less likely to come to Ireland. Vendors need to be aware of this and be more realistic on pricing as activity picks up during the rest of 2023.” 

This article was produced in collaboration between Colliers and Studio B. Bisnow news staff was not involved in the production of this content.

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