Occupier and investment sentiment in retail, office, and industrial property declined significantly in 2022, with most chartered commercial surveyors believing the property cycle is now in a downturn phase.

According to the Society of Chartered Surveyors Ireland Commercial Property Market Monitor 2023, half of the surveyors polled believe the market is in ‘early downturn’, with a further 22% reporting that the cycle is in ‘mid-downturn’ phase.

According to SCSI, its Commercial Property Market Monitor is informed by the findings of three surveys in 2022, involving 325 chartered commercial and valuation surveyors.

The Monitor provides net balance index charts illustrating surveyor sentiment on market trends. Net balance is calculated by taking the total number of ‘increase’ responses from ‘decrease’ responses and displaying the result.

The index charts provided are weighted composite measures capturing overall market momentum, encompassing variables on supply, demand, and expectations.  

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The majority of surveyors (53%) expect prime office capital values to decline by up to 10% this year, while just under half expect prime retail capital values to fall by up to 10%.

With regard to prime office rental values, four out of ten expect to see a decline in rental values by up to 10%, while one in three surveyors forecast that they will remain the same.

For the commercial retail sector, half the respondents in the survey believe that prime retail rental values will remain unchanged in 2023.

Seven out of ten surveyors expect that prime industrial rental values will either remain the same or increase by 5% in 2023.

Arlene Maguire, vice chair of the SCSI Commercial Agency Committee, commented: “The office market figures from the second half of 2022 showed the turning point that is now captured in the market expectations for the market into 2023, as the interest rate environment has shifted, and other factors have impacted overall sentiment among investors.”  

“Negative sentiment in retail has remained consistent since 2018 and has persisted for several reasons, namely Covid and the growing trends towards e-commerce activity and away from retail units. However, the figures do hint at an improvement against expectation as the trend towards the bricks-and-mortar retail outlets is a trend to watch.

“The change in investor sentiment is reflected in our survey findings, with two-thirds of chartered surveyors reporting a further deterioration in credit conditions in the last quarter of 2022, up from 22% at the beginning of the year. This is largely due to the rise in interest rates.”

Maguire added that the outlook for 2023 remains unclear.

“Investment volumes may remain subdued until the interest rate environment stabilises, and inflation rates become less volatile,” she explained.

“Feedback from our members suggests that foreign capital is cautious about further investment in the market due to the current economic uncertainty. Surveyors note supply and demand imbalances with industrial property, and this will drive some additional rental growth in this area.” 

“Anecdotally, the commentary from the survey seems to suggest that the challenging environment may be a short-term issue. Much of this hinges on the outlook for energy costs, interest rates, geopolitical issues, and the conflict in Ukraine.”

Photo: Arlene Maguire with Val O’Brien (left) and Stephen O’Leary, vice president of Dublin Chamber. (Pic: Jason Clarke)