Commercial property specialists CBRE is forecasting that the real estate market will show continued resilience in 2023 with another busy year of transaction and development activity in store, despite macro-economic headwinds.

The firm’s Outlook 2023 report says that Ireland’s property market performed better than expected in 2022, despite the impact of rising inflation, interest rate increases and a slowing European economy.

While trading momentum slowed in the second half of 2022, the industrial and logistics sector continues to show strong momentum, with take-up remaining elevated and prime rents continuing to grow. 

Office leasing volumes increased year-on-year, albeit activity still remains below pre-pandemic levels and the long-term market average, says CBRE.

The adviser believes that retail leasing activity has turned a corner, citing the vacancy rate on Grafton Street of just six units

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CBRE managing director Myles Clarke commented: “While the market is now adjusting to higher funding rates, and this transition period can be challenging to navigate, we have continued to see deals transact, which is a healthy sign of the market’s resilience.”

Colin Richardson, CBRE head of research, stated: “The opening half of 2023 will continue to be influenced by macroeconomic factors, and this will present some challenges and some opportunities. However, the initial market shock has now passed, and we could see real estate investment activity levels rebound stronger and faster than many anticipate.

“Sustainability will continue to grow as a factor influencing investor, occupier, and developer decision-making, while real estate that does not match environmental goals will become increasingly marginalised in the year ahead,” Richardson added.

Investment

According to CBRE Research, the Irish investment market recorded €6 billion of transactions in 2022. This was a 9% rise in volumes year-on-year and the second strongest year on record.

Residential (33%) and offices (26%) were again the two most invested sectors in 2022, while healthcare (10%) accounted for more spend than ever before.

Investment activity will be slower through the early part of 2023, CBRE predicts, though when there is more defined stability in relation to interest rates and the cost of capital, there will see a return to more normal trading conditions and asset price stabilisation.

CBRE expects that teal estate yields and asset pricing “will continue to recalibrate” through the first half of the year.

Some of our favoured sectors include defensive assets such as healthcare and supermarkets alongside the logistics and residential sectors. Prime offices, let to blue chip tenants, and value-add opportunities for secondary offices will continue to be sought after, CBRE believes.

Offices

CBRE identifies several challenges are facing the Dublin market at present including:

- The implementation of the hybrid model and its impact on the long-term demand for the office space.

- The slowdown in the technology sector globally.

- The impact of the growing sustainability requirement of occupiers and landlords and the threat that poses to secondary office stock "albeit this will present opportunities for developers and investors in the form of brown to green refurbs which will increase in prevalence this year".

Dublin office leasing totalled 234,000sqm in 2022, a 50% increase year-on-year albeit slightly below the 10-year annual average. Prime rents now stand at €65 per square foot for best-in-class product with the requisite sustainability credentials.

The CBRE report comments: “Looking into 2023, there are several fluid sub-plots that will play out around the Dublin office market. Two factors are particularly important - how occupiers continue to adjust to flexible working arrangements and the potential for a slowdown in the labour market.

“Take-up will continue to trend below the long-term average and net absorption trends in Dublin will change, with a greater focus on relocation versus expansion. We expect professional services and public sector clients to see more value in the market and drive take-up in the year ahead. Prime yields will continue to move out, to at least 4.5%.”

Retail

CBRE reports that prime high streets and shopping centres enjoyed strong growth in sales and footfall in 2022, as the market benefited from a deluge of pent-up consumer demand.

The CBRE report comments: “As a result of the pandemic, Dublin’s prominent retailers are now leaner operations, with the strongest performers well-positioned heading into 2023. Experiential retail and omnichannel strategies continue to underpin retail business models of the future, while retail investment pricing could indeed be more resilient than other sectors of the commercial property market in the year ahead.”