Commercial real estate risk is rising in Ireland, central bank warns

THE risks to Ireland’s economy are rising and starting to become more visible, the central bank warned as commercial real estate prices continue to slump.

“There are significant risks to the outlook, including increases in financial distress, a repricing in global and local commercial real estate markets, weakening loan growth and increased funding costs,” Governor Gabriel Makhlouf said on Thursday (Nov 23). “In light of these headwinds, this is a time to be prudent.”

This year is set to be one of the weakest on record for the Irish commercial property market, with prices dropping by more than 20 per cent since mid-2020. The fall in transactions mirrors declines seen elsewhere in Europe, as increased interest rates push up costs, forcing potential investors to ask for higher yields.

Ireland’s economy is still expanding, but at a slower rate than previously, Makhlouf told reporters in Dublin. That’s in line with the International Monetary Fund’s position, which recently predicted that growth in the country will ease to 1.5 per cent in 2023 and 2.7 per cent in 2024, from an average of 12 per cent in 2021-2022.

The increase in real gross national income (GNI) meanwhile is projected to moderate to 2.5 per cent in 2023-24. GNI is often considered a more accurate indicator of Ireland’s economy because gross domestic product is distorted by the large number of multinationals operating there.