Investment in residential property topped €260 million in the third quarter to hit a two-and-a-half-year high and climb 20 per cent above the long-term quarterly average, a report from Sherry FitzGerald shows.
The report, which is on the Irish investment market, shows activity “surged” during the period with total turnover reaching €699 million off the back of a significant improvement in transaction activity across residential, office and industrial assets.
This total was about 16 per cent ahead of the same period in 2024 and was the highest third-quarter level since 2022. However, it was 9 per cent below the long-term average for the quarter.
The “particularly noteworthy” improvement in the residential sector was put down to two significant acquisitions by property group Ardstone, which accounted for 37 per cent of total turnover during the quarter.
The group bought Spencer Place Residential in Dublin’s north docklands from the Ronan Group and Fortress Capital for €177 million. It comprises 360 private units across two blocks including build-to-rent apartments and co-living spaces.
The second deal concerned Birchwood Court in Santry, north Dublin, which consists of 180 build-to-let apartments, for €79 million.
The report said the renewed investor interest in the residential market was helped by the current low-interest rate environment and recently announced policy changes affecting the private lettings sector, scheduled to take effect in March.
“Notably, these changes will permit landlords to adjust rents to market rates between tenancies,” it said.
Sherry FitzGerald senior economist and head of research Jean Behan described the improvement in the sector as “very encouraging”, lauding in particular the VAT reduction on new apartments in last month’s budget.
However, the reduced rate of 9 per cent is not applicable to “forward fund-style investments”, she said, which are considered part of site and construction services.
“Extending the reduced 9 per cent VAT rate for new apartments to incorporate forward fund-style investments would further help attract much needed private equity to the market,” Ms Behan said.
“Forward fund-type investments have been absent from the private residential sector market since early 2023 due to myriad factors including elevated borrowing and construction costs, which impacted the viability of developments, as well as delays in the planning system.
“However, if this was extended to incorporate these, it may help attract much-needed private capital to the residential market and increase the supply of rental accommodation.”
[ Donohoe hints at extending VAT cut on apartments to forward-funding deals ]
Figures from the Residential Tenancies Board show continued growth in average rents. The standardised average rent for new tenancies in Dublin in the first quarter stood at €2,186, up 3.3 per cent on a year earlier.
Outside Dublin, the standardised average rent increased by 6.8 per cent year on year over the same period to reach €1,696.
The volume of transactions overall rose from 24 to 34 in the quarter. Domestic investors accounted for the largest share of investment spend at 52 per cent, largely reflecting the two significant transactions by Ardstone.
Overseas investors were responsible for a 40 per cent of turnover. French investors were particularly active, representing 30 per cent of total capital spend across eight transactions.
Taking the first nine months of the year, investor turnover totalled €1.6 billion, exceeding levels recorded for the same period in the previous two years, but still 31 per cent below the long-term average.
The report also signalled a rebound for offices, with these assets accounting for the largest proportion of spend at 32 per cent.
A total of 12 deals totalling €247 million in the third quarter drove year-to-date activity to €527 million, surpassing full-year spend in 2023 and more than double the level in the same period last year.
“The recovery in the office market was mirrored by robust activity in the lettings market, which coupled with limited development activity has led to a gradual decline in the vacancy rate,” the report said.
“With very little speculative development due to come on stream in the short term, the vacancy rate is expected to continue to decline, while shortages of high-specification energy-efficient offices are likely to emerge.”
In the largest office deal of the quarter, French investor Corum acquired 24-26 City Quay, Dublin, from Irish Life for €55 million.
Two further significant transactions include the sale of La Touche House, also Dublin, by Axa Investment Managers for about €36.5 million, while One and Two Shelbourne Buildings, in the city, were bought by French investor Arkéa for €35.8 million.
Investor spend on retail assets was more subdued in the quarter, totalling €61 million or 9 per cent of total market turnover. But, following a significant first half of the year, retail assets made up 30 per cent of investor spend at €491 million.
The most significant acquisition was the €24.5 million off-market purchase of Bright Motor Campus and unit four at Airside Motorpark, Co Dublin, by Iroko Zen on a sale-and-leaseback basis.
While investment turnover in the retail sector declined in the third quarter, the report said the sector has seen a number of significant transactions exceeding €100 million over the past 18 months.
This includes the two retail park portfolio acquisitions by Realty Income Reit in the first half of the year.
“This sector remains buoyed by continued robust consumer expenditure,” the report said.
“The sale of Jervis Shopping Centre [in Dublin] is reportedly close to completion for in excess of €100 million, suggesting that quarter four will be another period of strong retail activity.”
Industrial and logistics assets also witnessed a rebound in activity during the third quarter, with investor spend reaching almost €93 million or 13 per cent of total turnover.
The occupier market in this sector continues to see “very low levels of vacancy” while “speculative development” remains very limited, factors which the report said “should continue to attract strong investor interest” to the sector.
Nonetheless, it was the strongest quarter in 12 months for the sector, buoyed by the off-market acquisition of a number of units in Park West Business Park, Dublin, totalling 41,342sq m, by ICG for €65 million.
Away from the capital, Building One at Parkmore West Business Park, Galway, was sold by M7 Real Estate to Atland Voisin for €7.2 million.