For Investment To Resurge, The Irish Market Still Needs To Go Through Repricing

Investment in the Irish real estate market was muted in the third quarter, continuing the trend for the year, according to Colliers Ireland’s Capital Market Report Q3 2023. Although the €443M transacted was 32% above the total reached in Q2, it is 75% less than the total in Q3 2022. Total spending for the first nine months of the year came to €1.4B, down from €5B in the same period in 2022.

However, interest in Ireland from overseas investors remains strong, Colliers Ireland Director of Capital Markets Michele McGarry said. As the market continues to stabilise toward the end of the year, more investors will be keen to act.

The office sector was the top performer in Q3, accounting for 40% of total turnover. The largest deal was Corum Asset Management’s acquisition of Georges Quay House for €81M. 

Retail was the second-best-performing sector, as shopping centres continue to be popular among investors. The largest retail deal was the sale of the Hexagon portfolio, which comprises six regional shopping centres, for €74M. However, most buyers are still sector-agnostic, McGarry said. 

“There is generally strong interest in sectors such as hospitality, healthcare and student housing, but retail has also continued its resurgence,” McGarry said. “There were no reported private rented sector deals in Q3 at all due to a real lack of opportunities.”

The low level of total investment can be attributed to smaller lot sizes, McGarry said. The average deal size was far lower than in previous years. This is due to the unavailability of large, prime assets across sectors as well as the focus on equity in the market rather than debt. 

Though interest rates are expected to remain steady, Q4 is unlikely to be a bumper quarter, McGarry said. French funds, which accounted for 31% of investment in Q3, have become more cautious, and some have indicated they won't be deploying further capital in any markets. This could change once values move.

Several deals have failed in the last few weeks due to market uncertainty, McGarry said. This suggests that the gap between buyer and seller expectations needs to close for investment levels to increase. 

“We are still seeing a degree of unrealistic pricing in the Irish market,” she said. “For investment to kick-start in Q1 2024, repricing will have to go further. We expect valuations to fall more in line with investor expectations by the end of Q4.”

While environmental, social and corporate governance considerations remain important, investors are interested in assets that will provide long-term income, McGarry said. They are placing a sharper focus on yields and the strength of a tenant’s covenant. In the retail sector, this translates into interest in retail parks with supermarket tenants, while in offices they seek long unexpired leases.

Investment in Q3 came predominantly from Irish investors, which accounted for 43% of the total. However, there have been some new entrants to the market, including several French funds that have been assessing opportunities in recent weeks, McGarry said. Next year, Colliers expects investment from overseas investors to pick up.

“Now Ireland is an established market, overseas investors are more aware of opportunities outside Dublin,” she said. “They understand the geography of Ireland and are willing to look across cities for the right assets.”

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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