Coming into 2024, the biggest question marks for the commercial real estate market revolved around how it would adapt to a sea change in monetary policy and sustainability demands, and whether this year would mark an inflection point for interest rates, pricing and activity levels.
As we expected, the adjustment has been slow, but thankfully orderly and as we enter a new year, we believe the pieces are now falling into place for the sector to recover. From a returns point of view the steep falls in prime capital values we saw in 2023 have eased, suggesting we are approaching a bottom in the cycle. Transaction activity has remained subdued however, and improvement here will be a central ingredient to any upturn gaining traction in 2025.
Crucially though, Eurozone inflation has fallen back to the European Central Bank’s 2 per cent target, giving the bank scope to reduce interest rates three times already this year, with an expectation of around 1 per cent in further rate cuts next year. This further enhances the recovery prospects for 2025.
The office sector remained the one under most scrutiny in 2024, especially in Dublin, but the sands are shifting compared to the widespread gloom of a year ago. While Dublin vacancy remains high, we are confident that improving take-up, together with a sharply lower office pipeline, will sow the seeds for a tighter market over the medium term, particularly in the central business district.
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Across many other sectors of the market, performance and trading conditions were better. The living sector has perhaps the greatest potential given our demographically driven need for much more supply across the private rental, affordable, student and senior living segments. Unfortunately, Ireland has funding requirements for the living sector that just can’t be met internally so international investment is critical to accessing the required capital. Our research this year showing that Ireland has quickly become the second most regulated rental market in Europe makes this task all the more difficult however, and a change in approach is urgently required by the next government.
A number of large deals were behind a visible improvement in the development land spend in 2024, with underlying demand for residential supply around Dublin a key driver of this. But it is important we don’t allow this trend to crowd out the availability of land for the industrial sector, which is also needed to meet its growing demand for modern facilities amongst business looking to expand or establish new operations.
The retail sector has been the most popular sector with investors this year with retail parks all around Ireland proving particularly attractive. The hotel sector has also benefitted from a resurgence in activity also, built on the foundations of continued strength in the domestic economy and positive tourism patterns.
Thankfully the Irish economy continues to perform well and Budget 2025′s tax and spending package should support activity again next year. This is an important plus for the Irish commercial real estate market in an international context, but one we need to protect.
Overcoming our pressing housing and infrastructural needs and staying competitive economically over the next number of years will go a long way to succeeding on this front.
Aidan Gavin is managing director of Cushman & Wakefield
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