COMMERCIAL FOCUS What’s happening with the commercial market?

By Joan Henry, Chief Economist & Director of Research, Knight Frank Ireland

2023 is set to be a year of challenges and contradictions for the Irish real estate sector, at a time when additional supply is required across almost all sectors to meet the demographic profile of Ireland and to satisfy the requirements of global occupiers and investors in the high value adding sectors; the engines of Ireland’s continued economic success. At a time of strong economic activity in Ireland, global banking concerns, triggered by sharp increases in interest rates since the middle of 2022, have added a layer of caution to both occupier and investor decision making in real estate. This drag on activity and pipeline delivery is being felt to varying degrees across all sectors. Three common themes are, however, trending.

Quality

First there is a clear escalation of a move to quality – with occupiers, be they office, retail or industrial seeking space with ESG credentials and close to transport links. Investors remain keenly focused on the same “best in class” criteria.

Demand

Secondly demand is exceeding supply across a number of key sectors; in particular residential (both private and investment), logistics and industrial, and development land.

Debt Market

Thirdly, debt market challenges are impacting all sectors, with the supply pipeline for all assets stalling as investors assess the viability of schemes and land purchases against the backdrop of a re-basing of financing costs and complex and lengthy planning processes. Looking more closely at the occupier markets; active office occupiers have added an extra level of scrutiny to their decision making. This comes at a unique time in the market when additional space available to sub-let via the grey market coincides with an increase in the supply pipeline in the city centre. 2023 offers occupiers who know their requirements and are ready to act, an opportunity to secure new ESG certified space at a point when prime rental levels are set to dip to mid-€60’s psf. Demand in 2023 will be led by large requirements in the Professional Services sector. Logistics and industrial occupiers are operating in a market with less than 2% vacancy, while their requirements, for large new units in particular, are at an all-time high. The retail sector faces a broader challenge, with the divide between prime and the rest widening yet again. Prime retail parks continue to see effectively full occupancy as do prime shopping centres and high streets.

Investment activity year to date has been relatively subdued as international capital flows staggered amid rising debt costs and concerns about systemic risk to the global financial system. That said a total of just under €645m transacted in Q1 with residential investment taking the lead.

In keeping with the themes highlighted, a lack of prime assets on the market, across all sectors is also hampering activity. Prime yields will continue to come under pressure, with further outward movement expected as the year progresses, in tandem with the anticipated increases in interest rates by the ECB.

All participants in the industry need to work together to push through change, ensure vision and development, looking beyond 2023 to the requirements of Ireland’s economy and environment in the medium to longer term.

More New Modular Homes

The building of more new modular homes to a target of 10,000 each for the next 3 years.

Current Served Evection Notices

IPAV proposes one-to-one engagement by the RTB with landlords leaving the market to offer these proposed solutions to them.

Safeguard Rents Through

HAP AMENDMENTS

IPAV proposes that the Government should continue to pay the Local Authority portion of rent to landlords where HAP tenants stop paying their portion of the rent. This should prevail until the agreed rent is restored or until the landlord secures a new tenant.