Sharp adjustment in Ireland’s €50bn commercial property market ‘likely to continue’

Central Bank officials discuss ongoing turmoil in the sector in response to cycle of rate hikes

The sharp plunge in asset values in Ireland’s €50 billion commercial property sector is “likely to continue”, Central Bank of Ireland policymakers were warned last month.

According to the minutes of the bank commission’s meeting in November, officials discussed the ongoing turmoil in the sector in response to the European Central Bank’s cycle of rate hikes.

In response to queries about the exposure of lenders here, “it was noted that this sector was the most affected by tightening of conditions and that the downturn would continue, with lower quality and older commercial property particularly hard hit”.

“A cohort of property funds was highly leveraged and that is why the bank had introduced macroprudential measures for these entities, while banks had much lower exposures than in the past,” minutes of the meeting said.


“Banks and the overall system were resilient to the risks but the adjustment was likely to continue in the sector,” they said.

The warnings come amid reports that some investors were surrendering the keys to their properties in response to sharp falls in asset values.

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Vasileios Madouros, deputy governor for monetary and financial stability at the Central Bank, warned last month that the possibility of a commercial property crash was “one of the main risks” to the Irish economy.

He said that cyclical shocks such as rising interest rates had combined with “persistent” structural shocks from the increased incidence of remote working and therefore fewer people working from offices.

“We have seen very significant adjustments in valuations globally in Europe, and in Ireland, and these adjustments are continuing. It has been orderly so far, but it is an area where investors might make losses and creditors might also make losses,” he told the Federation of International Banks in Ireland (FIBI) conference in Dublin.

Central Bank officials also discussed the rising number of first-time buyers in the Irish mortgage market “despite the interest rate environment”.

“On first-time buyers, overall, new mortgage lending had remained robust and the bank’s mortgage measures would have had a level of influence, as would certain Government supports,” the minutes stated.

The Government has been criticised for providing various support schemes for first-time buyers, with critics claiming they fan further inflation in the market.

While headline property price inflation has fallen to just 2.3 per cent nationally, it remains over 10 per cent for new homes, where many of the purchasers are first-time buyers using Government schemes.

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Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times