The Irish commercial property market is set to have one of its weakest years on record, according to new data from real estate agent Sherry FitzGerald. The third quarter saw below-average transaction levels, with a total investment of €430 million ($454 million). This figure falls far below the long-term third-quarter average of €788 million. In total, investment in Irish commercial real estate for 2023 stands at €1.4 billion, a staggering 64% drop compared to the €3.9 billion recorded during the same period last year.
Senior economist at Sherry FitzGerald, Jean Behan, noted that the current 22-year high in interest rates has significantly hindered activity levels. This decline in transaction volume mirrors the trend seen across Europe as rising interest rates lead to increased costs and demand higher yields from possible investors.
Despite the overall drop, the office sector remains the primary driver of investor activity, representing 38% of capital spend during the third quarter. This is noteworthy considering the dwindling number of transactions witnessed in the office sector over the past three quarters.
David Martin, capital and debt advisory partner at EY Ireland, explained that the office sector faces unique challenges stemming from interest rates and sustainability requirements. He emphasized that the office and broader commercial property market currently have a more diverse capital structure compared to a decade or two ago. This diversified structure helps to safeguard against a potential crash, although there has been a decrease in transaction volume recently.
Martin further clarified that while the number of transactions has declined, it should not be interpreted as a crash in the market. He highlighted the distinction between a crash and a lower number of transactions. Thus, there is no indication of a market crash occurring at present.
Overall, the weak performance of the Irish commercial property market in 2021 can be attributed to a combination of soaring interest rates, increased costs, and sustainability requirements. While the office sector continues to attract investment, the market as a whole faces significant challenges. With the current economic climate, it remains to be seen how the Irish commercial property market will rebound and perform in the coming months and years.