Commercial property specialists CBRE today released their comprehensive Outlook 2025 annual report, containing their predictions for each sector of the Irish property market in the year ahead. The property consultants highlight how the market is at the start of a new cycle for investment and development, as ECB interest rates continue on a downward trajectory and asset valuations have stabilised across all sectors.
In commenting on the report, Colin Richardson, Director & Head of Research at CBRE, said, “Despite the ECB’s 2% inflation target proving more stubborn to reach than anticipated, it is expected that European interest rates will continue to tick down in the year ahead. When we look to property yields, CBRE Ireland are now calling yields as stable for all sectors under our coverage, while the MSCI Ireland Index of total returns turned to positive territory in Q3 last year following 8 consecutive quarters of negative returns. All indicating that we now at the start of a cycle of for investment where we can expect asset valuation growth over the coming years.
The formation of a centrist coalition now entering Irish government should be positive for housing, planning, regulation, and infrastructure. It is key for this government to ensure the continuity of schemes that have started to have a positive impact on supply in the housing market. We also think that with a five-year term in front of them, policymakers can be more flexible and supportive of measures to encourage institutional investment in the Irish market, where there is a clear funding gap if we are to meet revised housing targets of over 50,000 units per year.
One of the potential weaknesses to Ireland’s FDI-reliant economic model this year comes from the protectionist policy in the U.S. under the Trump Administration, in the form of trade tariffs or cuts to U.S. corporation tax. Multinational corporations based here have deep ties to Ireland and are unlikely to reverse out of the jurisdiction in response to a tax cut, but what of new investment from North America or the 30% of Irish goods exports that go to the U.S.? How this plays out will be one of the most determining factors shaping both Irish and global growth in the year ahead.”
Investment
· According to CBRE Research, the Irish investment market recorded over €2.4 billion of transactions in 2024, a 30% increase year-on-year, albeit this was largely due to the sale of the Blanchardstown Shopping Centre for approx. €575m and spend remains 40% below the 10-year market average.
· For the first time since 2016, retail was the most invested sector in Ireland, accounting for 43% of total spend. This was followed by office (21%) and residential (19%).
· The largest investment transaction of the year was the sale of Blanchardstown Shopping Centre to Strategic Value Partners for approx. €575m.
· CBRE expects to see a continued increase in investment activity in 2025, with full year spend likely to trend above €3bn.
· The Irish market has only seen the very start of the recovery in the investment market; capital has been on the sidelines for the last two years, pricing has rebased, debt has cheapened, and we will also see liquidity events and the end of fund life leading to more sales. Across all sectors, values appear to have bottomed out, and CBRE has in fact now marked yields across all sectors as ‘stable’. This will lead to a much more meaningful turn in investment in the year ahead.
· Despite stubborn inflation and a selloff in the bond markets early this year, CBRE expects the ECB to cut interest rates further in 2025, which will further stimulate investment activity.
Forced Office Sales
· The office sector will see an uptick in investment activity this year, as some more forced office sales are expected in the secondary office subsector. CBRE guideline ‘Secondary Dublin Office’ yields have expanded from 5.0% to 8.0% over the past three years, implying asset valuation declines of up to 60%.
· However, despite guideline yields having expanded, some lenders and borrowers have not yet fully realised value declines on their books.
· The greater transparency in pricing for secondary offices in the market – particularly due to the sales of buildings like One & Two North Dock and Connaught House – provides firm comparable pricing and will mean more buildings will see valuations marked lower on the books, and this could lead to more forced sales as debt covenants are breached.
Residential
· The rental cap regulations currently in place in the Irish market have contributed to a significant slowdown in residential investment over the last two years, and in 2024 investment volumes in the sector totalled just €466m.
· A review of the current rent regulations in Ireland would assist a rebound of investment in the sector, which is vital to meet the government’s housing target of 50,500 new units per annum.
· One change to regulation that would be beneficial to supporting more investment in the sector is to apply the rental cap to the individual tenant’s lease as opposed to being tied to each specific property/unit.
· New dwelling completions continued to fall short of targets in 2024, largely due to the decline in apartment completions – which fell by 18% nationally year-on-year.
· Dublin apartment completions will decrease further in 2025, and by 2026, the construction of private rental apartments will significantly decrease, as the majority of recent apartment commencements are social and affordable in tenure.
· Some notable residential buildings are being prepped for sale including 18 Newmarket Square and a notable large-scale city centre building that will tempt investors.
Development Land
· The Planning and Development Act 2024 will bring much-needed reform to the Irish planning process. Although the Act has its critics, overall, it should enhance and support the development of housing in Ireland this year and beyond.
· In particular, the introduction of statutory timelines for planning decisions and the changes to the judicial review process will enhance decision-making, transparency and lower development risk in the years ahead.
· Land sales totalled over €900m in 2024, following a strong Q4 where over €415m of transactions were recorded. Full year spend is nearly three times the total spend recorded in 2023 but still marginally below the long-term annual average for the market. Notably, the top five land sales of 2024 accounted for 50% of the total spend in the year.
· Some large commercial sites are coming to market in 2025, including the receivership sale of Camden Yard. While the introduction of the Residential Zoned Land Tax (RZLT) will stimulate further residential site sales.
Offices
· Dublin office leasing activity rebounded in 2024, with full year take-up totalling 210k sq. m, a 66% increase year on year.
· Generational moves by large accountancy and technology companies taking up new HQ space in Dublin have shifted sentiment drastically.
· The vacancy rate has now peaked and will start to decline this year, as office construction slows.
· Just 62,000 sq. m of Dublin office stock is due to complete in 2025, the lowest level since 2015. This will aid the decline in vacancy.
· The availability of sustainable space in the core city centre area of Dublin 2 is already beginning to tighten and will continue to do so in 2025.
· However, the bifurcation between the demand for modern, sustainable, core city centre buildings and non-sustainable buildings remains a key theme in the Dublin office market and more decisions will be made in relation to older buildings this year (i.e. to sell, refurbish or repurpose).
· Prime Dublin office rents remained unchanged in 2024 at €62.50 psf. CBRE is forecasting prime rents to reach €65 psf in 2025, driven by the tightening of supply of sustainable stock in core locations.
Hotels
· Nearly €900m worth of Irish hotel transactions completed in 2024, making it the strongest year for the market since 2006. Transactional activity will remain strong this year, with a similar level of transactional volumes forecast for the market in 2025.
· The Morrison Hotel has been placed on the market in Q1 with a guide price of between €90-95m.
· While occupancy rates in Dublin remained strong at over 80% in 2024, average daily room rates (ADR) declined marginally and are likely to come under further pressure in 2025 as 1500 hotel rooms are due to open in 2025.
· Despite a decline in average room rates from €179 to €174 last year, ADR still remains 20% higher than pre-pandemic room rates.
· Developers and investors are beginning to recognise the gap in the Irish market for purpose-built tourist hostels.
· The sale of Jacobs Hostel in Dublin 1 to Azora Group for a price reported to be over €45m completed this year while ‘Clink’, a 600-bed hostel opened on Abbey Street.
· Firethorn Trust and SW3 also recently acquired a development site at Sackville Place with planning permission for a 588-bed hostel. There have also been a number of sites granted permission for the development of tourists hostels at Macken St., Foley St., and Chancery St.
Retail
· Leasing momentum across both the high street and shopping centres was healthy in 2024, with notable brands such as Alo Yoga, Kiko and New Balance entering the Irish market. Grafton Street vacancy remains low with just 7 vacant units, while the vacancy rate in shopping centres nationally is just 5.4%.
· The advent of experiential retail and leisure offerings in Dublin is particularly notable. This is a trend which has been present in the UK and other European cities for several years but one which is only now coming to Dublin. International operators are recognising this gap in the market and several experiential brands are now set to enter the market in 2025 including brands such as Barry’s, Bounce, Flight Club and Lane7.
· Rising operational costs weighed on the Food & Beverage sector in 2024 and resulted in a spate of restaurant closures throughout the country. An increase to the National Minimum Wage, the introduction of the Auto-Enrolment Pension Scheme and the end of the Debt Warehousing Scheme are just some challenges faced by restaurateurs.
- The reinstatement of a 9% VAT rate for non-accommodation-based hospitality will offer some respite, however.
Industrial & Logistics
· Take-up fell by 50% year-on-year in 2024 to 150k sq. m, the lowest level since 2011, largely due to global economic uncertainty weighing on the sector. JYSK and Sports Direct were involved in the two largest deals of the year.
· However, increased levels of nearshoring and Ireland’s strong consumer spending leading to retail-related take-up should be positive catalysts for leasing momentum in 2025.
· CBRE is forecasting rents to grow to €14.50 psf in 2025 and yields to remain stable at 5%.
