Savvy investors see opportunity as cycle of interest rate hikes comes to an end

The Irish property investment landscape witnessed a significant shift in 2023. Reflective of broader economic conditions and an evolving investment landscape, asset values and transactional volumes were down across most sectors. Of particular note, we saw the lowest level of private investment into the residential sector since 2017, as the increase in interest rates squeezed financing from the sector.

Despite this slowdown, the investment market in Ireland has exhibited resilience in certain sectors. For instance, the office market has become increasingly bifurcated, with A-rated ESG-accredited stock in core Dublin 2 significantly outperforming competing office product. Elsewhere, retail has held up relatively well, with Grafton Street seeing a number of transactions take place, albeit at reduced valuations compared to those witnessed in recent years. Higher passing yields for regional shopping centres and retail parks have provided some insulation from the rising rate environment, with debt still accretive to returns in certain instances.

Looking ahead, there are grounds for optimism as we head into 2024. Most of the heavy lifting with regard to inflation has now been undertaken, with the euro zone inflation rate falling to just 2.9 per cent in October compared to 10.6 per cent in the same period last year. As a result, the period of interest rate increases is coming to an end – if not already in the rear-view mirror – and we are now entering the downward slope of the rate cycle. Entering this new phase of the rate curve will provide stability for lenders, allowing them to start loosening the purse strings on the debt cost and availability once again. This will help in the transition back to a more normalised market.

While there will be further adjustments to yields in 2024, most of the required pain has already been taken in 2023. Nevertheless, there will be a degree of market distress and resulting forced sellers, and savvy investors will be on the acquisition lookout in 2024.

CRH landbank with scope for 1,700 homes primed for €25.5m sale

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Lagan Homes pays more than €16m for south Dublin residential lands

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Limerick landmark Barrington’s hospital for sale at €12.5m

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Offices at The Grange in Stillorgan seeking €8m

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While the Irish property investment market has experienced a downturn in 2023, the market is in a state of transition, aligning with broader economic contexts. The outlook for 2024 is, therefore, cautiously optimistic

The lack of new commencements in the office sector means we are heading towards a supply shortage of suitable office stock in the medium term, with experienced office developers able to see through the current cycle to spot these opportunities in the future. Relatedly, stranded office assets will create a repurposing megatrend over the next decade, requiring a huge quantum of capital. While it is a complex area, those who can crack it will reap the rewards and that is why I have made it an area of key strategic importance at Savills.

Alternative investment sectors are likely to once again prove popular in 2024, given their unique defensive demand characteristics. An area of particular interest is the student accommodation sector. The ratio of two students per purpose-built bed in major Irish markets highlights a severe shortage of student housing. This imbalance presents significant opportunities for investors, as the shortage is expected to persist, amplifying the demand for such properties. Healthcare is another area that faces a similar supply shortage dynamic, with the potential for inflation-linked government-backed covenants attractive to investors.

[ David McWilliams: Ireland's commercial property market is on the cusp of monumental collapse ]

While the Irish property investment market has experienced a downturn in 2023, the market is in a state of transition, aligning with broader economic contexts. The outlook for 2024 is, therefore, cautiously optimistic, underpinned by Ireland’s solid economic fundamentals and strategic shifts in the property market. They say one should never waste a crisis, and seasoned property operators will see next year as an opportunity to acquire long-term value in anticipation of a cyclical rebound in 2025.

Mark Reynolds is managing director of Savills Ireland