The economy continued to decline in 2023 because of multiple external factors, such as the residual impact of Covid-19, the conflict in Ukraine, and now the expanded global unrest caused by events in Israel and Gaza. Foreign direct investment (FDI) export-led growth and a continuation of the State’s budget surpluses from corporate tax have helped to shield consumers and businesses from some of these external economic shocks. However, as this large tax return comes from a small number of foreign-owned multinationals, the extent of our future reliance on this tax income is unknown.
That said, in terms of the economic outlook, a 3.5% increase in GDP is predicted for 2024,1 with unemployment rates projected to remain static at a historically low 4.2%. The European Commission reports2 that private consumption of goods in Ireland is expected to grow moderately over the coming quarters, as tighter financial conditions weigh on household spending. However, a strong labour market and rising real wages are projected to support consumption through 2024 and 2025.
The commercial property market is influenced by a range of factors, including economic performance, inward investment levels, employment levels, cost of finance, and much more. The level of Ireland’s competitiveness is another factor that impacts on commercial capital values and yield levels. Ireland’s competitiveness is framed by persistent inflation challenges (the Consumer Price Index (CPI) stands at 4.6%), the cost of living challenges brought about by increased energy costs, the impact of Brexit on trade and business, and the fallout from Covid-19 on the market.
The Society of Chartered Surveyors Ireland (SCSI) Commercial Market Review and Outlook Report 2023 (published in February 2023) reported that 29% of Chartered Surveyors forecasted that prime office capital values will remain unchanged, with 53% expecting them to decline by as much as 10%. A total of 30% of Chartered Surveyors forecasted that prime office rental values will remain the same, with 42% expecting a decline in rental values by as much as 10%.
The State’s commercial vacancy rate stood at 14.1% in June 2023,3 an increase of 0.2% when compared to the same period in 2022. Despite the marginal increase, this marks the highest vacancy rate recorded since 2013. The rise of remote working and flexible workspaces has redefined the demand for office spaces, with questions now being asked around how best to repurpose vacant stock for other uses.
2023 was the year when the new text of the Energy Efficiency Directive was approved by the European Parliament, although it has yet to be agreed by the Council of Ministers. When approved, EU member states will have two years to transpose the new rules into national law. With the continued added emphasis on sustainability, this has reshaped the priorities of both investors and tenants. Despite the general reduction in demand for office space, 2023 saw investment opportunities continue for sustainable buildings, which continue to attract relatively good levels of demand.
The industrial and logistics sector is reported to have had brisk activity levels across the country, with strong levels of demand persisting for well-located units, especially within close proximity to the east coast motorways and main cities.
The retail sector is predicted to experience a new spurt of retailers re-entering the market after post-Covid reductions in some rents. However, the availability of prime retail stock continues to be a challenge, and it is unlikely that any new shopping centres will be built across the country. Therefore, the availability of prime high street and shopping centre units will need to come from existing stock.
Overall, the sentiment regarding further investment in sectors such as retail, which was severely impacted by Covid restrictions, is improving, with higher expectations in the industry that tourism numbers will be up, and the hospitality sector will enjoy a brisk trade into 2024.