Irish commercial real estate deals plummet as buyers bide time

INVESTMENT in Irish commercial real estate plummeted in the final quarter of 2022, amid uncertainty over rising interest rates and subsequent asset pricing.

Deals for office space slumped 83 per cent in the fourth quarter, while investment in warehouses and other industrial properties evaporated almost entirely, according to unpublished data from real estate firm Jones Lang LaSalle (JLL).

This marked a sharp turnaround, as 2022 was up until then a near-record year for investment in Irish commercial real estate.

Overall, deals completed in the fourth quarter generated about 756 million euros (S$1.1 billion) – less than half the amount of the preceding quarter and down 62 per cent from a year earlier, according to JLL.

Office deals declined from 756 million euros in the last three months of 2021 to 128 million euros over that same period in 2022, while industrial investments sank 97.5 per cent to 13 million euros.

The drop-off in investment – and particularly office space – is the most recent sign of stress for the commercial property market, which has been hit hard by large technology companies with regional offices reducing their headcounts.

Other real estate firms contacted by Bloomberg reported a decline in the valuation of office deals by as much as 91 per cent over the same period. With higher interest rates and inflation adding to investor hesitancy, views are mixed as to when the market might rebound. In a research report released on Wednesday (Feb 1), a team of Knight Frank economists led by Joan Henry predicted that a level of caution would remain in place for “at least” the first half of 2023.

“Higher inflation and a changed funding environment is putting pressure on yields,” Henry observed, adding that ESG requirements mean that all investment decisions will be subject to increased scrutiny.

Other analysts are more bullish. In a January market outlook report, CBRE head of research Colin Richardson predicted that once the initial rate shock has passed, there is potential in coming months for a rebound that is “faster and stronger” than many expect.

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Roughly 5.6 billion euros – the second-highest amount on record – was generated last year in Ireland through commercial real estate deals.

That was “bolstered by some notable sales”, JLL Head of Research Niall Gargan said, citing Brookfield Asset Management’s 1.1 billion euros purchase of Dublin-based Hibernia Reit and Blackstone’s deal for the new Salesforce headquarters in the Dublin docklands. BLOOMBERG