Major drop in property sales to large funds

INVESTMENT funds fled the Irish property market last year, a new report shows.

Rising interest rates mean institutional investors are looking elsewhere to buy.

Sales of all property to investors fell to €1.85billion last year, a drop of €4billion from 2022. Solely residential investment slowed from an average of nearly €2billion a year between 2019 and 2022 to just €434million last year – the lowest level since 2017.

Report author John McCartney, of BNP Paribas, described the investment fall as ‘a big drop’. He said: ‘2023 faded out meekly with just €434.6million of assets trading. Indeed, this statistic probably flatters the reality as one transaction accounted for more than half of total spending.

‘Turnover for the full year reached €1.85billion, a 69% contraction compared with 2022, and the lowest out-turn since 2012. Just 114 deals were done in 2023.

‘This compares with a tenyear average of 223, and with a high-water mark of nearly 300 deals in both 2014 and 2016.

‘While no immediate recovery is expected, market conditions should improve later in 2024 because of expected interest rate cuts and improved liquidity as forced sales come through.’

However, rising interest rates mean many cash-rich financial institutions are investing their money in safer assets such as bonds rather than investing in property.

That leaves more property on the open market for private individual buyers to pick up bargains. Mr McCartney added: ‘This has opened up the opportunity for domestic buyers because there will always be a flow of smaller deals.’ One deal which saw a domestic investor snapping up a bargain as the market softened was the sale of the Chancery building near St Stephen’s Green in Dublin.

It is understood it sold for about €19million, a discount of almost a quarter on the €24.75million price that had been guided, and was bought by an Irish private equity property development company headed up by businessman Eamon Waters.

Office sales have approximately halved since 2019/2020.

Last year, just 20 deals were completed, worth a total of €386million – which is the ‘smallest flow of office investment since 2012’. In fact, no prime, new-build offices have been bought since the third quarter of 2022.

Only 25 deals were worth €20million or more last year, which is the lowest number since 2013, and 43% below the ten-year average.

Private investors were behind 46% of last year’s deals, up from 31% in 2022, and the buyers invested €4.7million – 16% below what they paid in 2022 and 70% below the overall market average.

The share of spending accounted for by institutions such as real estate investment trusts (REITs) and insurance companies fell from 37% in 2022 to 11% last year as buyers of core assets ‘baulked at vendors’ asking prices’.

However, retail investment rose from €359million in 2022 to €407million last year, sending retail’s market share to 22% – its highest since 2017.