Article by Jackie Fitzpatrick, Head of Investments at Lisney. (jfitzpatrick@lisney.com | +353 87 228 3459 )

Last week I along with my investment colleagues at Lisney visited Expo Real in Munich, one of Europe’s leading international trade fairs for property investment. With over 40,000 global visitors from over 75 countries, it’s an ideal and fast-paced way to gauge investor interest and appetite for the 6 to 12 months ahead.

One thing for certain is that there is more positivity in terms of investors’ appetite to deploy capital than 12 months ago.

It’s fair to call the bottom of the current Irish investment market cycle as being Q1 2024. Market turnover levels for Q1 were at the lowest levels we had seen in approximately 10 years. This was due to price reductions seen over the past 2 years due to rising interest rates with higher costs of finance, inflationary pressures, global political uncertainty, and wars in Ukraine and Gaza. This in turn had caused increases in redemption requests and loan-to-value breach concerns.

Since Q1 this year, we saw market turnover increased three-fold in Q2, and return to more normal market levels in Q3, while investors remained still cautious and sticking generally to smaller deal sizes than is norm.

One of the main turning points has been certainty around interest rates stabilisation and long-awaited reductions in rates.

The ECB reduced the main refinancing operations rate from 4.5% in June this summer by 25 bps, and further again in September to 3.65%.

Today investors will be happy to see further interest rates cuts by 25bps to 3.4%, providing more certainty in the market. We expect to see a further interest rate cut in December this year as inflationary pressures have started to come under control across the EU.

The German and French economies have been slower than anticipated recently, and ECB interest rates should benefit these powerhouse economies. For these reasons, Lisney anticipates that further interest rate cuts can be expected moving into 2025.

These interest rate cuts should provide an injection into the Irish commercial real estate Investment market. We also expect to see an increase in larger deals completed, which have been in short supply for the past 2 years. This should have a significant impact on market turnover going forward. We are starting to see a number of larger deals over €100million being agreed in the Irish market mainly in the retail and industrial sectors.

At Expo, we had numerous face-to-face meetings with international investors interested in investing in Irish real estate. It was clear to see what sectors are hot and what’s not.

Investors seem keen to invest in the industrial and retail warehouse sectors over the next 12 months. Also, demand will be there for sectors that traded well during COVID-19 showing their resilience such as supermarkets, healthcare, assets with tenants of strong covenants, longer WAULTs (usually over 6 years), and a flight back to super prime locations. Good ESG credentials are becoming more and more important and were hot topics at Expo, particularly with the high costs of refurbishment works and the difficulty of improving BERs around tenants that are occupying buildings.

While investment appetite in the residential sector across Europe appeared healthy, Ireland’s rental cap is certainly keeping international investors at bay.

For offices, concerns remain around financing, post-Covid vacancy rates, and tighter ESG requirements. But there are pockets of positivity with demand for offices with smaller floor plates in the right locations, be it a super prime location close to amenities or affordable Dublin housing where office lettings have shown resilience.

While the ECB interest rate cuts have come too late to save 2024 annual deal volumes, they have provided more certainty on the route the interest rates are heading, and are providing a positive outlook for 2025.