Foreign Investors Waiting on The Sidelines As Property Values Adjust
€625m of corporate property investment in Q1, down 18% y/y
Trading dominated by three €100m deals
Continued focus on ‘defensive’ sectors – Residential, Logistics, convenience retail
US Investment falls to €14.75m from 10-year average of €213m
No German buyers for first time since Q1 2017
Adjustment in vendor expectations needed to re-start overseas investment
According to a new report by property consultants BNP Paribas Real Estate, the main international buyers of Irish property have paused their activity in Ireland in anticipation of further price adjustment.
International investors have crowded-out domestic buyers of income-producing property over the last decade, with the local share of turnover falling from 55% in 2014 to under 14% last year. However, the biggest foreign players in the Irish market paused activity in Q1 2023. US investors purchased €8.7bn of offices, shops, warehouses, apartments and other rent-earning properties between 2013-2022. But they only deployed €14.75m of capital in Q1, down from a 10-year quarterly average of €213m. Germans have been the second biggest foreign buyers, spending over €6bn in the last decade. However there were no German purchases in Q1, the first time that this has happened since Q1 2017.
According to John McCartney, BNPPRE’s Director of Research,
“International investors remain confident in Ireland as an investment location, particularly because our demographic profile underpins strong demand for residential, logistics and certain forms of convenience retail property, including grocery stores and retail parks. However, rising interest rates have triggered a reassessment of property values and, in a small market like Ireland, it takes time for an evidence-base of transactions to bring vendors’ and buyers’ pricing expectations into alignment.”
Investment property values are sensitive to rents, which have been under pressure in segments of the office and retail market, and yields which are dictated by interest rates; As rates increase, fixed income investments become relatively more attractive and there is less debt capital for property deals. This reduces the amount that investors are willing to pay for a given stream of rental income.
The upshot of slowing rental growth and rising interest rates is that investment property values are now
adjusting down. Damien McCaffrey, Director of Investment at BNPPRE, has recently returned from a European investment property sales convention in Cannes. He commented;
“It is clear from our discussions with investors that Ireland remains an attractive investment proposition. However it is also evident from these conversations, and from the sharp rise in the domestic share of investment, that further pricing adjustment has a way to go.”