This time last year, some believed 2024 would be the year the investment market turned the corner, with much anticipated (and desired) interest rate cuts being the catalyst for renewed market activity. Yet, 12 months later it feels very familiar. Little has changed. An oversimplified view that interest rate reductions would be the panacea for the market proved to be misguided, and ignored the many and sometimes contradicting external factors that influence capital markets.
As we near the end of 2024, we expect all investment sales across the country to total €2.3 billion, which is not dramatically different from 2023.
Ireland’s commercial real estate fortunes are deeply interconnected with geopolitical events, trends and economies. For those with negative tendencies, there is plenty to worry about, including a global climate crisis, energy security concerns, heightened tensions in the Middle East, the rise of nationalism and protectionism, the potential for US/EU/Chinese trade wars, cyber warfare, and misinformation affecting democratic processes. Yet for all that, I see plenty of upside for 2025.
The above concerns affect all countries. However, at a local level, Ireland has record levels of employment with an unemployment rate of 4.4 per cent. Household savings are at an all-time high (accepting that not all lived experiences are the same) and the exchequer has been running a surplus. Retail sales are resilient. GDP, which is expected to marginally decline this year, is expected to increase by 4 per cent next year and a further 3.6 per cent in 2026. Inflation is under control and our debt is falling.
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Within the euro zone, we’re near the top of the class, with better economic data than most other EU members.
In Ireland we will (hopefully) have a newly elected and mandated government with a five-year runway to implement decisions. And so, for 2025, I believe the Irish commercial property market will witness a recovery and we will see better activity across nearly all commercial property sectors. I expect debt markets to free-up as transactional activity gives lenders evidence that a floor has been reached. Occupational activity in all sectors will improve, underpinning the income streams from investment property, and this will lead to modest rental growth in most sectors. ESG issues, which confused the market for the last 18 months, are now better understood and are priced in as part of a normal and mature market. Similarly, the hybrid-working pendulum will continue to swing back towards office-based employment.
That is not to say there won’t be challenges. We can expect to see further receiverships as those who bought at different times in the cycle become unstuck. Land without planning will struggle, and restaurant operators will still face headwinds. Similarly, the private rented sector market continues to be too reliant on State-backed purchasers. However, retail investments will be sought after, as will industrial assets. The hotel market will again fare well, and I won’t be surprised by a better volume of office investment activity in the second half of the year. Investor demand remains from an influx of French SCPI investors, (with plenty of new names) and expect some of the German and North American investors to become active again in the second half of the year.
James Nugent is head of commercial real estate with Lisney
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