Ireland’s Q4 2022 Investment Total Might Be Low, But New Trends Signal More Deals Ahead

Ireland’s real estate investment turnover in Q4 2022 was down 47% on the total in Q4 2021. However, a strong level of activity in retail and a shift in investor demographics are both trends that highlight opportunities in the market and could signal a return to activity in 2023.

These are the headlines from Colliers’ Ireland Capital Markets report. While the figures reflect a desire among investors to see how economies develop, some are already looking to take advantage of shifting occupier demand, Colliers Head of Capital Markets Michele McGarry said.

“Turnover is down year-on-year across all markets,” she said. “It’s a global issue, created by rising interest rates and uncertainty about other economic pressures. We feel that uncertainty is going to flow into 2023, but there are also opportunities out there. New entrants are coming to the market, who haven’t traded in Ireland before.”

Total investment for the year came to €6B when the sales of Hibernia REIT and Yew Grove REIT are included, up from €5.5B in 2021. As in previous quarters, residential accounted for a high proportion of investment at 38% of the Q4 total.

Much of this activity was driven by the private rented sector, which continues to grow, McGarry said. Social housing is also seeing increased attention, assets that are seen as somewhat more secure and ESG-friendly.

One of the most notable elements of the report is that total retail investment was above office investment in Q4 2022, coming in at 14% of total investment versus 6%.

“The retail occupational market is stronger than it has been during the past few years, which directly translates into investor activity,” McGarry said. “We’ve been through a recession and the pandemic and come out the other side. Several retail parks and regional shopping centres have changed hands, usually acquired by domestic investors who understand the nuances of the market.”

The low level of investment in offices is down to a growing lack of prime office space, McGarry said. Investors are less interested in secondary offices, as occupiers’ flight to quality office space continues. ESG is now a significant consideration, and rising build costs are putting investors off office assets in need of refurbishment.

“It’s not that there isn’t appetite for offices, but that investors are generally seeking prime assets with strong ESG credentials, and these assets are generally not available for investment,” she said. “There is a pipeline of new offices, but they have not yet hit the market and with the rise in grey space they may be slower to find tenants.”

Office take-up across Ireland is now above the 10-year average, McGarry said, following a low level for a few years during the pandemic. While uptake from the technology sector is lower than in previous years, there has been an increase in requirements from the financial and legal service sectors. Firms are quick to take prime office space, if it is available.

Investors are clearly looking for other opportunities, reflected in an increase in investment in alternatives such as healthcare, McGarry said. The largest deal of 2022 was John Laing Group's acquisition of a portfolio of 20 primary health centres and 10 development sites — all with leases in place to the HSE — for approximately €300M.

This brought total spend in the healthcare sector to €558M or 12% of 2022 turnover. McGarry said Colliers expects demand for medical-related assets to continue to grow but it will be held back by a lack of suitable product.

Across sectors, 74% of investment came from overseas investors during 2022, up from less than 50% five years ago. Within that, 21% of investment came from Canada including two REIT sales, while U.S. investors accounted for 24% of the annual total. European investors were also very active during 2022.

“There has been a big increase in investment from France, where they see value for money,” McGarry said. “In previous years, German investors have dominated out of European investors. It’s worth noting that French investors buy smaller lots than German investors, who often seek deals worth more than £100M.”

How fast activity picks up in 2023 will depend on interest rates, McGarry said. However, the Colliers team expects new entrants to start making a move as confidence returns.

“2023 is going to be an interesting year,” she said. “In MIPIM in 2022, we spoke to a lot of new investors keen to enter the market, but they are still yet to make a move. We look forward to seeing if this changes in 2023. People are still waiting to see how interest rates will move, but we expect investors to start acting soon.”

This article was produced in collaboration between Colliers and Studio B. Bisnow news staff was not involved in the production of this content.

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