Investment property market to experience one of its 'weakest' years on record 

Sherry Fitzgerald report says development land transactions were down 50% to €226m in the year to September — the lowest levels seen since 2015 

According to a report by Sherry Fitzgerald, in the year to the end of September, investment acquisitions reached €1.4bn, a drop of 64% from the €3.9bn recorded during the same time last year. File picture: Rolling News

The investment property market as well as the land development market are set to experience “one of the weakest years on record” as the value of transactions across both markets drop significantly, a new report by real estate company Sherry Fitzgerald has said.

According to the company’s latest Irish investment property and development land market report, in the year to the end of September, investment acquisitions reached €1.4bn, a drop of 64% from the €3.9bn recorded during the same time last year.

Development land transactions were down 50% to €226m — the lowest levels seen since 2015 including pandemic impacted 2020.

The volume of transactions in both markets is down by just over a third during the first nine months of the year compared to the same period in 2022 with just 571 development land sales and 91 investment sales closing.

According to the report, this would suggest that 2023 looks set to be “one of the weakest years on record in both markets”. It continues: 

The impact of the high borrowing cost environment was also evident by the relatively low volume of higher value transactions in both markets compared to previous years.

The Dublin region accounted for 69% of capital spend between January and September with Cork accounting for 5% of turnover, with a further 3% in Galway. Approximately 8% of investment spend comprised portfolio transactions that spread across a number of counties.

There has been a marked decline in the proportion of high value investments compared to recent years. Since the start of the year, only 2% of transactions were valued at €100m or greater, all of which took place in the opening three-month period.

A further 7% ranged between €50m and €100m in value. Almost two thirds, 64%, were between €1m and €10m in value. This is compared to 45% of transactions for the corresponding period in 2022.

In the land development sector, the volume of transactions was also very low with only 572 land deals closing during the nine-month period, approximately a third lower than the corresponding period in 2022.

“This reflects rising borrowing costs and above average building and construction cost inflation, which were exacerbated by continued delays in the planning system,” the report said.

The greater Dublin Area, which includes Dublin, Kildare, Meath, and Wicklow, attracted the largest share of capital transacted during this time at 79%, or €179m. A further 12% was located in Cork, equating to €28m, while the remaining 9% or €19m was located in Galway.

The majority of these sales, 58%, were for between €1m and €5m.

According to the report, the interest rate hikes from the European Central Bank (ECB) “are now likely to have peaked”.

“This coupled with the considerably lower levels of building and construction cost inflation seen in recent months should help restore confidence in both markets,” the report said.

However, the report added that both borrowing costs and building costs remain elevated “suggesting that activity levels will remain below average in the short term”.

“In addition, in the development land market, demand for sites without planning is likely to remain impeded by continued delays in the planning process.”