While 2024 was a year of two halves, prospects are positive for 2025. It is likely that the bottom of the market was reached this year, and we will see improving conditions and results each quarter from here on.
The early days of 2024 saw the continued dampening effect of higher interest rates on the commercial real estate investment market, resulting in first-quarter investment turnover of only €162 million – the lowest level recorded in a single quarter in more than 12 years.
From mid-year onwards, ECB interest rate reductions led to greater investment activity, and as we approach year-end, the full-year market turnover should easily exceed €2 billion, a significant recovery in a short time frame. However, this figure is still far short of the 10-year average of €4.1 billion.
In 2024, retail emerged as the most invested asset class, a significant turnaround for the sector last popular with investors in 2016.
The office sector has become bifurcated, with significant demand but very limited supply of core offices during the year. The demand for off-pitch or ESG-challenged assets proved less robust initially, but as supply of opportunities improved, we saw increased activity, albeit at significantly lower values.
The most significant sale of the year of a prime asset was 40 Molesworth Street in Dublin 2, purchased by Deka in the second quarter for a net initial yield of approximately 5.17 per cent. This deal provided the much sought-after pricing discovery for the prime office market.
Another interesting transaction saw the Health Service Executive purchase vacant and short-leased offices at Elmpark Green in Dublin 4 for just more than €50 million, pointing towards a trend of existing offices being redirected to medical-related uses.
The industrial, or “sheds” sector, had been a strong performer in the years post-Covid and Brexit; however, 2024 saw a reduction in investment activity due to significantly fewer opportunities, rather than any diminution in appetite from investors. Prime yields in the industrial sector are now about 5 per cent and arguably trending stronger.
The “beds” sector proved robust during the year, with long-leased social residential proving extremely attractive to investors seeking to secure, long-term, index-linked income. The purpose-built student accommodation sector was active, as evidenced by the sale of Scape Student Living in Dublin 2 to Hines, and the imminent sale of the Point Campus scheme in the north docks to Greystar.
Unfortunately, investors continue to be put off investing in the private rental sector (PRS) due to prevailing rent control measures.
Looking forward to 2025, the mood music from the ECB suggests continuing interest rate reductions towards a target rate of 2.5 per cent by 2026, which will benefit the investment market as debt funding becomes more accretive to deals. However, with Donald Trump returning to the White House, it remains to be seen what impact economic measures, such as the suggested trade tariffs, might have on European economies, particularly Ireland.
Investment spend in 2025 will likely focus on retail, industrial, and all forms of “beds”, except PRS. As the “return to office” mantra continues, prime offices and appropriately priced secondary offices will remain liquid.
Willie Norse is managing director of TWM
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