Irish Investment Property Market Stagnates in Second Quarter

The Irish investment property market has experienced a challenging second quarter, resulting in a noticeable slowdown and earning the label of the weakest period in six years, according to a report by BNP Paribas. In fact, this market suffered the third sharpest slowdown across Europe in the first half of 2023. The report highlights sluggish price adjustments and a weaker office market as primary contributors to this slowdown. Furthermore, German investors, who were previously active participants, have become increasingly inactive, resulting in a significant decline in market spending.

Between April and June, only €333.4 million worth of income-producing property changed hands, marking a staggering 47% decrease compared to the first quarter of 2023. This figure is even more alarming when compared to the second quarter of 2022, as it represents a significant 73% drop, excluding a large deal from that period.

Historically, German investors have been the biggest foreign buyers of Irish investment property, accounting for 19% of the market turnover between 2016 and 2021. However, with the rise in interest rates over the past year, German buyers have taken a back seat, causing their market share to plummet to less than 2% in the first half of 2023. Typically, these investors consist of institutions like pension funds, targeting blue-chip properties that generate stable and reliable rental income.

On the other hand, domestic buyers and French investors have emerged as increasingly active participants in the market. Domestic buyers now account for 24% of market activity, while French buyers represent 11% of spending in the first half of 2023. These buyers tend to focus on smaller lot sizes and less prime assets, indicating a shift in investment preferences.

BNP Paribas emphasizes that the price adjustment process is ongoing and expects continued sluggishness in activity during the second half of 2023. However, the report also predicts a recovery in trading volumes next year as more transactional evidence emerges and greater clarity on interest rates becomes available.

It is important to note that this report specifically focuses on the investment market, where owners sell tenanted, rent-generating properties to new investors. It does not cover the occupier end of the commercial property market, which deals with landlords leasing space to tenants.

In a separate report by BNP Paribas published earlier this month, it was noted that office leasing activity in Dublin experienced a slight pickup between April and June. However, this increase remains subdued compared to historical standards.

The Irish investment property market has faced significant challenges in the second quarter of 2023, resulting in a near standstill. The combination of sluggish price adjustments, a weaker office market, and reduced activity from German investors has contributed to this slowdown. However, BNP Paribas anticipates a recovery in trading volumes next year, emphasizing the need for greater clarity on interest rates and an increase in transactional evidence.