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As we approach the end of 2024, the global and local real estate markets present a mixed picture. While the recent interest rate cuts in Europe and the US have stimulated activity, challenges remain in certain sectors. The following is an overview of the global real estate trends, followed by an in-depth look at the Irish real estate market by sector.

Global Market Overview: Rate Cuts will lead increase in Activity

The global real estate market has seen a resurgence in activity, largely due to recent interest rate cuts by central banks. Lower rates, aimed at boosting economic growth and alleviating deflationary pressures, have created a more favourable environment for both investors and borrowers.

According to Pitchbook, globally, private real estate funds are underperforming and fundraising activity dropped below historical levels. Notably, over 75% of capital raised this year has gone to established funds, highlighting the industry’s reliance on tried-and-tested strategies amid market uncertainty. Digitalisation, deglobalisation, and legislative advocacy are emerging as key themes for investors and fund managers.

In the US, following a significant deterioration and stagnation in market activity in the last 18 months, property transactions are finally picking up. Commercial offices remain challenging, but investors are showing renewed interest, especially as the retail sector prepares for growth in 2025.

In Europe, investment volumes are on the rise in Q2 2024. The total for the first half of 2024 is expected to exceed €74 billion, indicating a steady recovery despite inflation, that was, until recently, still sitting at c.2.7%. The European real estate market is expected to stabilise further as we move forward in this part of the cycle, with lower interest rates attracting more investment

The following are some key trends we have observed from a variety of industry experts recently:

• Public real estate companies are seen as underheld and mispriced, with transaction volumes picking up and cap rates expected to compress.
• Retail fundamentals remain strong, with new store openings expected through 2027.
• Data centers are experiencing unprecedented demand due to the rise of AI technologies.
• Office remains challenged but there is a price to enter.
• Banks are not keen to take back assets. Opportunities to buy way below replacement cost. Europe is cheaper, relatively, than the US currently.
• Real Estate is the world’s largest asset class and should not be ignored – cash will be put to work.

Irish Real Estate Market: A Sectoral View

Residential

Ireland’s residential market has benefitted in the last few years from positive global macro trends, particularly lower market leverage during the higher interest rate cycle and strong net inward migration. While supply of new homes is increasing, numerous industry report, government department reports and reports from the Central Bank of Ireland point to a need to deliver >50,000 homes per year for the next 5 years, up from the current delivery in 2023 of c.32,000 homes. It’s vital to note that while housing investment is on the up, infrastructure investment and action in this space to support the growth of housing and communities has lagged significantly. It is welcomed from the 2025 Budget recently announced that the Government are stepping up investment considerably in delivering utility and other infrastructure that is much needed.

Commercial Real Estate

The commercial real estate market in Ireland presents a more complex picture. While superprime office spaces with excellent ESG credentials in central locations are performing well, secondary markets and lower quality assets are struggling. This being a combination of the green premium and the balance of hybrid working models and back to office trends as companies try to figure out their future space requirements.

Occupier confidence is returning, with major lettings from companies like Stripe, BNY Mellon, and the HSE signaling a rebound in demand for city-centre office spaces. There is also evidence of strong demand for smaller floorplate spaces in key suburban office locations with the right amenities and services nearby, as we have seen in the Park Carrickmines. Despite this, the availability of office space in Dublin remains high, with an availability rate of 16%, though demand is expected to rise as economic conditions stabilise.

Retail Real Estate

The Irish retail market is undergoing a significant transformation, largely due to the continued rise of e-commerce, but cognisant of the need for certain elements of retail, which will have to remain as an in-person experience. Although retail assets have experienced price reductions, the sector is showing signs of resilience, especially in high-demand areas like Dublin’s Grafton Street. While some landlords are hesitant to lower rents, many retailers are optimistic about the future, with several international brands, including Alo Yoga and Space NK, entering the Irish market.

Industrial and Logistics

The industrial and logistics sector in Ireland has seen strong demand, particularly in Dublin. In Q2 2024, 27,000 square meters of space was taken up across 20 deals, reflecting high demand for logistics facilities. Notably, West Pharma’s acquisition of 9,000 square meters and PCI Pharma Services’ pre-lease of 7,650 square meters highlight the continued strength of this sector. Prime rents remain stable at €135 per square meter, with expectations of rising to €140 by the end of the year.

Outlook for Q4 2024 and Beyond

Looking ahead, several factors will influence the trajectory of the real estate market, in Ireland and globally. Interest rate cuts are likely to continue to play a pivotal role, making borrowing more accessible and driving investment across all sectors as expectations of yield compression strengthen. For Ireland, the outlook is cautiously optimistic, with strong fundamentals in the residential, logistics, and hospitality sectors supporting continued growth.

In Ireland, however, we do need to be cautious of complacency when it comes to inward cross-border investment. While we have seen strong capital inflows into Real Estate in the last decade, the risks of over-regulation, restrictions and red-tape and under-investment in infrastructure are real. We need to ensure that Ireland remains an attractive destination for investment groups who are critical to equity and debt funding of real estate here.

The commercial office market, while facing challenges, is expected to stabilise as the peak in-office trends evolve and more people come to the office during the week. In the retail sector, adaptability and a focus on essential retail as well as experiential offerings will be key to maintaining momentum, while the industrial and logistics sector will continue to benefit from the growth of e-commerce and supply chain resilience. While not without its challenges, the trends emerging in 2024 suggest a period of recovery and opportunity, particularly for investors who are willing to adapt to changing market conditions.