Despite substantial market uncertainty, commercial property investment turnover reached €1.75 billion in Q3 2022, up 122% relative to Q3 2021.
The Q3 total brings turnover for the first nine months of the year to €3.76 billion or €4.97 billion when the sales of Hibernia REIT and Yew Grove REIT are included, compared with €3.5 billion turnover during the same period in 2021.
There were 44 transactions completed in Q3, and the average deal size stood at €39.87 million which is the highest on record. This is largely down to the sale of the Salesforce HQ & adjoining hotel at Spencer Place to Blackstone for a price in the region of €500 million. There has also been good activity in the sub-€20 million price bracket, which accounted for 68% of all deals and 17% of total turnover year-to-date.
Residential was the top performer again in Q3, with PRS sales accounting for five of the top ten deals. In addition to the sale of Salesforce’s HQ, a further €208 million was invested in office assets, representing 12% of turnover, while investment in industrial & logistics fell to €90 million (5% of turnover) from €177 million the previous quarter.
There has also been continued investment in the healthcare sector which accounted for 10% of Q3 spend, largely attributable to a sale and leaseback nursing home portfolio which Aedifica acquired from Bartra Healthcare for €161 million.
The strong Q3 performance must be considered in the context of what is happening in the wider economy where several conflicting forces are at play. At the beginning of the year, we saw the lifting of pandemic-related restrictions, which drove growth in consumer spending and employment, supporting greatly improved occupier activity across all sectors. Economic growth has continued to exceed expectations, and unemployment is now at 4.3%, supporting demand in the office sector. Conversely, a series of shocks to the global economy since March have led to surging inflation, and central banks have responded by raising interest rates.
As expected, rising interest rates and high inflation are impacting investor sentiment, although pricing remained relatively stable in Q3, underpinned by strong occupier markets and low supply. Investors are certainly more cautious, particularly in relation to vacancy and potential future refurbishment or redevelopment costs which are increasingly relevant in the context of ESG. Market uncertainty means that deal timeframes are becoming more elongated, and some investors are adopting a ‘wait and see’ approach until the picture is clearer. The likelihood of further interest rate hikes has made it difficult to predict with any certainty where values will go next year, but we expect that the picture will be clearer by year-end as transactions agreed in Q2 and Q3 reach completion.
Despite negative headwinds and the potential for further volatility, the level of global capital targeting real estate is near record highs and Ireland is still a core market for overseas investors. With more than €1.6 billion worth of assets on the market at the end of Q3 and a number of high-value transactions progressing off market, it is likely that full-year turnover will exceed last year’s total of €5.5 billion to deliver another strong year for the Irish investment market.