According to recent research by BNP Paribas, the Irish commercial investment property market came to a “near standstill” in the second quarter, making it the lowest in six years.
Sluggish price adjustments and a weaker office market contributed to the downturn, while “inactive” German investors further compounded the problem, leading to the third greatest slowdown in Europe in the first half of 2023.
Between April and June, just €333.4 million worth of income-producing property changed hands, a figure that is 47% lower than the first quarter of 2023. It was also 73% lower than the second quarter of 2022, and that’s after adjusting for one very huge sale in that period.
According to Kenneth Rouse, managing director and head of capital markets at BNP Paribas Real Estate Ireland, “it is a sobering reality that market turnover between April and June was less than that recorded in any quarterly period during the pandemic.”
Despite the fact that increasing interest rates are already a fact of life, “the market is responding quite slowly.”
Mr. Rouse speculated that this was due in part to the fact that there was very little market hardship at the moment.
The Irish investment property market is not significantly leveraged in comparison to prior cycles. He said, “As a result, there is not a material flow of distressed assets coming to the market at present to provide liquidity opportunities.”
According to BNP Paribas Real Estate Ireland’s director of research John McCartney, the size of the Dublin market is a contributing factor to the delayed adjustment of asking prices.
When compared to larger cities like London or Paris, Dublin’s market is rather unimportant. When interest rates rise, “everyone knows” that home values would fall, he added.
“But with limited transactional evidence to work with, it may be more time-consuming for vendors and buyers to converge on an appropriate discount.”
Between 2016 and 2021, German investors accounted for 19% of the market turnover of Irish investment property. Their market share has dropped to less than 2% by the first half of 2023 as they have taken a backseat since interest rates began climbing a year ago.
Institutional investors in Germany, such as pension funds, seek out “blue chip” real estate because of the security and predictability of its rental revenue.
Our discussions with German funds indicate that they continue to see great potential in Ireland as an investment destination. Mr. Rouse argued that investors were unwilling to risk capital given current bond rates.
Twenty-four percent and eleven percent, respectively, of expenditure in the first half of 2023 may be attributed to domestic and French purchasers seeking lower lot sizes and less desirable properties.
According to BNP Paribas, the slowdown in activity in the second half of 2023 will be a result of the ongoing price adjustment process. But it anticipates a resurgence in trade activity in 2019 as more evidence of transactions and interest rate stability becomes available.
It examines the market where landlords sell their rental properties to new investors who would collect the rent payments in the future.
The portion of the commercial real estate sector where landlords lease space to tenants is not included. Although office leasing in Dublin increased between April and June, according to a second BNP Paribas research issued earlier this month, the increase was still “subdued by historical standards.”