Irish commercial property investment slowed to just over €1 billion (-47% year-on-year) across 37 transactions in Q4 2022, reflecting a global slowdown in investment volumes as a result of market uncertainty and rising interest rates.
The Q4 outturn brings full-year investment spend to €4.8 billion, rising to €6 billion when the sales of Hibernia REIT and Yew Grove REIT are included, making 2022 the second-strongest year on record after 2019. This is a remarkable result given the context, although it is clear from the reduction in activity in Q4 that the challenging global economic situation is now having an impact on the market.
When REIT sales are excluded, residential was the top performing investment asset class with 38% of the quarterly and annual totals. Conversely, investment in offices slowed to just 6% of Q4 turnover. For 2022 however, offices accounted for 22% of total turnover, boosted by the sale of Salesforce Tower in Q3.
Notably, retail was also a top performer in Q4 with €153 million invested (14% of turnover) including several regional shopping centres and retail parks which have been attracting good interest among domestic investors and owner-occupiers such as Frasers Group. Full-year investment in retail assets hit €363 million (8% of turnover) which is an increase of 17% year-on-year.
Just one industrial & logistics asset traded in Q4 following almost two years of very strong performance. This was largely due to repricing in the sector which meant that certain large transactions did not complete late last year. This brings industrial & logistics investment to €458 million for the year, almost double the ten-year average, with investor interest remaining robust.
Investor appetite for alternative assets in the healthcare sector continues to grow with this sector representing 12% of investment turnover in 2022. The majority of this is attributable to a large portfolio sale which saw John Laing Group (KKR) acquiring 20 primary health centres and 10 development sites leased to the HSE for approximately €300 million in Q4. Belgian REIT Aedifica also acquired 7 nursing homes for €240 million during the year and demand for all medical-related assets is strong.
Inflation and higher interest rates have meant that investors are generally more cautious and repricing across all sectors is continuing. Transactional evidence is lagging the market, resulting in a mismatch between buyer and seller expectations. This has been impacting deal flow and it is likely that the opening months of 2023 will see more subdued levels of activity.
Despite more challenging market conditions, Colliers are maintaining a cautiously optimistic outlook for 2023. Repricing will continue but will be offset by strong occupier markets, supported by an economy far outperforming European peers across a range of metrics. Investor sentiment towards Ireland remains extremely positive and we expect to see new European investors entering the market in 2023. Once pricing begins to stabilise, this will pave the way for more normalised levels of transactional activity with overseas investors again predominating.