Capital flows in the Irish property market.
“Capital flows into the Irish property market reached €25.5 billion in 2023, buoyed by the strength of demand for residential property.”
Statement by Sherry FitzGerald Commercial Research
Wednesday, June 19th, 2024
Sherry FitzGerald, Ireland’s largest estate agent, reported today (Wednesday, June 19th, 2024) that capital flows into Irish property totalled €25.5 billion in 2023, just 6% below the €27.2 billion recorded in 2022. This is despite the significant rise in borrowing costs throughout much of the year and reflects the resilience of demand in the residential market. In particular, residential spend, which incorporates all market transactions, residential investment and student accommodation, accounted for the majority of this total at €22.9 billion, relatively unchanged from the previous year.
In contrast, capital flows into commercial property, which includes all commercial property transactions and development land sales valued at €1 million or greater as well as agricultural land sales, contracted by a significant 41% during the year to reach €2.6 billion. Notably, direct investment into commercial property fell to €1.4 billion in 2023 from €2.7 billion the previous year, while development land spend more than halved to reach €392 million in 2023.
According to Jean Behan, Head of Research, Sherry FitzGerald Research; “Although the overall flow of capital into the property market fell only moderately during 2023, the commercial market witnessed a particularly severe contraction as higher borrowing costs eroded returns and impacted the viability of developments. The downturn in the office sector, which is an integral segment of the commercial market, has also had a significant impact on commercial capital flows. Similarly, elevated construction costs and continued delays in the planning process augmented the impact of higher borrowing costs in the development land market.”
Dublin saw its share of capital flows decline to 46% in 2023 to reach €11.7 billion, reflecting reductions in both residential and commercial spend. In contrast, the regional centres of Cork and Galway both witnessed an influx of capital into commercial property during the year, while residential spend in these locations also increased. Notably, Cork accounted for the highest portion of capital flows outside of the capital at 10% or €2.5 billion. Galway absorbed a further 4% to reach €972 million. Limerick recorded a decrease in capital spend across both residential and commercial property compared to the previous year to reach at total of €615 million.
Interestingly, although overall flows into residential property remained similar to the 2022 level, further analysis shows noticeable differences in the profile of purchasers. In particular, non-household entities, including institutional investors, local authorities and Approved Housing Bodies accounted for €4.1 billion of total residential spend in 2023, down from just over €5 billion recorded in 2022. This reflects the curtailment of forward fund and forward commit type investments during the year. In comparison, spend by private households, including small private investors, increased by 5% in 2023 to reach €18.8 billion.
Commenting on market activity, Brian Carey, Commercial Director, Sherry FitzGerald said “Across the State, the impact of funding difficulties, rising construction costs and the sustainability requirements for commercial buildings has resulted in significant stranding of assets in the main streets of provincial towns. Underutilisation and dereliction issues are a significant problem for many of these commercial buildings. Sherry FitzGerald are involved in a number of bodies currently liaising with government departments to highlight these issues and provide potential solutions that could help improve viability and reactivate these buildings in the commercial SME sector in town centres and cities across the country.”
The outlook for 2024 is positive as the economy returns to more moderate rates of growth, while the recent interest rate cut announced by the ECB will help restore confidence to the market. Residential spend is expected to remain robust in the year ahead while the recovery in the commercial market is likely to be tentative as the office market, which continues to see strong levels of vacancy, may take longer to recover. Demand for industrial & logistics and retail space however, is expected to remain strong while the hotel sector is predicted to see a record year for capital flows.
