On the office front, availability of well-located, premium space will remain lean, while the value gap between the best and worst will continue to widen.
The path to market recovery will be uneven with divergence across multiple sectors. It is the undistinguished middle market that is struggling to find traction with investors, unless heavily discounted. In a rapidly evolving environment, understanding markets and asset classes at a more granular level is critical to investors’ value-generating strategies.
Outside Ireland, the UK has experienced the quickest pricing correction across Europe, resulting in the strongest uptick in investment activity in 2023, followed by Germany. Accordingly, we expect the same rules to apply here, as once pricing is correct, investment spend will increase.
Investors anticipate that supply-and-demand imbalance caused by population growth and housing availability and affordability issues will support this sector for the foreseeable future. Investors will remain keen on deploying capital into alternative-living classes such as purpose-built student accommodation and senior housing, both of which are linked to fundamental demographic trends.
Demand for all industrial and logistics segments is, and will remain, high. The limited supply of standard product is providing a solid backstop for values, leading more investors to explore specialised sub-sectors connected to the evolution of e-commerce and supply chains, including light industrial and manufacturing. The completion of the Pontegadeas acquisition in Baldonnell from Mountpark for some €225 million, gives investors confidence not only in the sector and underpins Ireland as a core market. To date this is the largest deal reported in the Irish market, and by a long shot. Even more interesting is the fact that the second largest deal reported this year involved the same buyer, Pontegadea. They entered the Irish market with the acquisition of Opus, a high-end residential portfolio at 6 Hanover Quay in Dublin’s south docklands for some €101 million. To recap, the average deal size in the third quarter of this year came in at €14 million.
On the retail front, Retail Parks remain en vogue, with a large volume a capital chasing very limited stock and new entrants continuing to explore this space, which ultimately may have a positive impact on pricing. This appetite is underpinned by the strength of the occupational market in this sector.
If you are thinking of selling in 2024, one piece of advice is to be “race-ready”. In this uncertain market, we are seeing buyers walk away from transactions where technical and other factors surrounding the sale are not as originally presented.
To conclude, 2024 will be challenging with further repricing expected across certain sectors. We will continue to see new entrants to our market.
The average investment spend per annum over the last 10 years was €4.3 billion. It is expected at this point that the volume for 2023 will be substantially less. Notwithstanding this fact, the demand for assets with long-term income and strong covenants, across all sectors will continue.
