A combination of weak demand for office space and rising interest rates reducing the amount of debt available to fund deals conspired to shrink the Irish investment property market by 69 per cent last year, BNP Paribas Real Estate Ireland said on Tuesday.
In its market report for the fourth quarter of last year the bank’s director and head of research John McCartney said a “transaction drought” persisted throughout 2023 due to “mispricing” of property assets.
Turnover in the market, which comprises offices, hotels, residential and retail other income-producing assets, plunged €1.85 billion in 2023, the lowest level since 2012 when the economy was mired in recession. Overall just 114 transactions were completed in the year, well below the 10-year average of 223.
The period between October and the end of December, typically one of the busiest for the market, saw just €434.6 million of property assets changing hands, making it the weakest quarter of the year and the slowest fourth quarter for “well over a decade”, Mr McCartney said.
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Just one transaction – Pontegadea’s €225 million purchase of some 1.2 million sq ft of logistics space at Baldonnell Business Park – accounted for more than half of total spending in the quarter, “compounding the gloom.”
The situation was particularly acute in the residential investment market where transaction values plunged to just €433 million last year, compared with an average of nearly €2 billion from 2019 to 2022. Rent controls coupled with increased State-led activity in the private rented sector through housing bodies contributed to the slowdown, according to the report, with government agencies becoming an increasingly “attractive exit option for developers”.
Mr McCartney said sector-specific challenges challenged occupational demand throughout the year. In the office subsector the prevalence of remote working post-Covid coupled with a global tech downturn had a “disproportionate” impact on Dublin where many of the biggest companies and employers are located.
“For retail and residential the challenges include online shopping and rent control respectively” in combination with a weaker economic backdrop.
He said rising interest rates have also been brought to bear on investment levels, reducing the amount of debt available in capital markets to finance “larger property transactions”.
“These dynamics are undoubtedly impacting values, but the extent of this is unclear due to a scarcity of comparable evidence,” Mr McCartney said. “The information vacuum has triggered a cautious reflex in both vendors and purchasers, resulting in bid-offer spreads that are too wide to bridge.” These conditions have conspired to create a “transactional logjam” because assets are being mispriced.
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