Irish Commercial Property Dealmaking Slumps to Near-Record Low

Irish commercial property deals slumped to one of the lowest levels ever recorded in the second quarter, as investors shied away from the market amid rising borrowing costs.

(Bloomberg) — Irish commercial property deals slumped to one of the lowest levels ever recorded in the second quarter, as investors shied away from the market amid rising borrowing costs.

Just 26 deals with a combined value of €333 million ($367 million) were closed during the three months between April and June, according to research by real estate broker Sherry Fitzgerald Group. Activity in the period was sharply lower than during the first quarter. 

In the first six months of 2023, total spending in properties such as offices, warehouses and retail space dropped by more than half to €985 million compared with the same period a year ago, the report said.

“The rising borrowing cost environment has played its part in muting investor activity,” said Jean Behan, senior economist at Sherry Fitzgerald. 

Commercial property markets across Europe have seized as buyers and sellers struggle to agree on pricing. Rising interest rates have driven up financing costs, prompting potential investors to demand higher yields. That results in lower offer prices, and owners are resisting granting steep discounts to book values on concerns that could cause debt ratios to surge. 

The drop in activity in Ireland mirrors declines elsewhere in Europe. French commercial real estate volumes dropped by more than 60% in the second quarter, while the sector in Germany saw the number of deals plunge to their lowest level since at least 2017 in the first half of the year.

In June, Central Bank of Ireland Governor Gabriel Makhlouf warned that commercial real estate markets were “particularly vulnerable” to a rapid tightening of global monetary policy.

Almost six in ten Irish commercial property deals closed in the opening half of 2023 were valued at less than €10 million, with just 11% exceeding a valuation of €50 million, Behan added. 

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