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Dublin 2023: What The Year Ahead Holds For Real Estate

Dublin 2023: Celtic Tiger or Pussycat Dull?

The Dublin real estate market is anticipating 2023 in a strange limbo. Strange because 2022 was another stellar year for the market and yet despite strong fundamentals, clouds of uncertainty are gathering.

Most of those clouds have been blown in by global issues. Russia’s ongoing invasion of Ukraine has rattled global markets and notably has seen inflation and the cost of living spiral upward and a consequent increase in interest rates.

While the strength of the economy and high levels of employment have sheltered Dublin and wider Ireland from the worst of the effects to date, huge uncertainty has put the brakes on — or at least paused — the pace of acquisitions, developments and residential building.

The latter is especially key as Ireland has a significant shortfall of residential properties compared with demand and housebuilders have been spooked by the potential impact of inflation, labour and materials costs, making predictions about their return on investment difficult to assess.

In the commercial real estate sector, Dublin’s enormous success in attracting global tech players has come back to bite the city in the latter stages of the year. Just how deeply the global layoffs across the tech giants will directly impact Dublin’s office market is yet to play out.

But clearly, it’s not good news and the ability of other sectors such as life sciences and the legal professions to absorb space is, once again, an unknown.

An estimated €6B was invested in the commercial property sector in 2022, supercharged by a number of landmark deals, notably the sale of Hibernia REIT for nearly €1.1B, plus the deals for Salesforce’s new €500M European headquarters and a substantial portion of Meta’s Dublin 4 campus for €395M.

That made Dublin one of Europe’s top 10 most active real estate markets last year according to Emerging Trends in Real Estate Europe 2023, the 20th annual survey by the Urban Land Institute and PwC of European real estate sector leaders’ expectations for the year ahead. Dublin also ranked in the top half of the 30 European cities ranked for investment and development prospects, holding its position at 13th, similar to last year. 

Dublin ranked 12th in development, 11th for rent and 11th for capital values.

“Despite economic uncertainties, Dublin continues to show attractive real estate investment and development potential," PwC Ireland Real Estate Practice Leader Joanne Kelly said. "As the only English-speaking territory in Europe having a supportive business environment and with added demand post-Brexit, we continue to see interest in Dublin as a location offering value and competitive returns for real estate investment.” 

Dublin A Key Location

Meanwhile, notwithstanding the economic challenges, the outlook for the Irish real estate sector remains positive and Ireland continues to rank highly as a key strategic location for lenders and investors, according to EY Ireland Associate Director Strategy & Transactions - Debt Advisory Donal Thomas Crotty.

The shakeout in Ireland’s banking sector has left more room for domestic and international non-bank lenders to meet the funding needs of players in the Irish real estate market, Crotty said, while the exit of KBC Bank Ireland and Ulster Bank means that competition is now among just three domestic banks and some international lenders.

“This in turn has led to an increase in competition for a foothold in the already densely populated non-banking sector, which is contested by incumbent non-bank lenders as well as new entrants to the market, both domestic and international," Crotty said. "The funding landscape is therefore more diverse and complex, which positively keeps lending terms competitive and enables a range of blended financing solutions."

There are also plenty of positives for 2023. Despite the issues around residential development, demand remains red-hot and is unlikely to be impacted even if there is a spate of redundancies in the technology sector. 

Whether the year ahead sees renewed vigour or a cautious pause remains to be seen but as the driving sectors of offices and housebuilding play a wait-and-see game at the start of the year, other sectors may enjoy renewed interest.

Away from offices and residential, Bisnow caught up with experts on logistics and retail for their take on the year ahead.


CBRE's Garrett McClean

Garrett McClean, Executive Director, CBRE Advisory & Transaction Services

Bisnow: If the real estate sector in 2023 was a song, film or TV programme, what would it be?

McClean: Bohemian Rhapsody as it’s chaotic, a bit unpredictable and has everything: a ballad section, guitar solos, even opera and changes key four times (a bit like market sentiment in real estate!). For logistics and data centres, I’ll stick with Queen and go with Don’t Stop Me Now, given the very strong year we’ve just experienced.

Bisnow: Who will be the property hero of 2023?

McClean: I’m not convinced there will be a standout hero next year and I’m slightly biased as I think both the logistics and data centre sectors will continue to witness solid growth in 2023. 

There’s a substantial undersupply of modern logistics stock with vacancy at a record low of 1% and we’re tracking record high occupier demand of more than 5M SF. To put that into perspective, the 10-year average Dublin take-up is 3.3M SF with just over 4M SF of take-up in Dublin this year.

I expect investor appetite for prime stock to remain robust, with continued upward pressure on prime rents, which increased by a record 10% this year. At present there’s 2.76M SF under construction in the Dublin market and nearly 70% is either pre-let or reserved. Undoubtedly, the outlook for the logistics sector is positive but it is not without its supply constraint issues.

Dublin is the data centre hyper-scale capital of Europe with over 900MW of contracted power. While Dublin is power constrained, so are Frankfurt, London, Amsterdam and Paris, the other tier 1 markets, along with many of Europe’s tier 2 markets. In November 2021, the Commission for Regulation of Utilities issued a report which led to EirGrid’s announcement that there would be no major new grid power deployments in Dublin for the short-to-medium term.

That said we’re seeing continued activity within the sector and this year we expect to see substantial demand for suitable sites with access to power in Dublin’s surrounding counties of Louth, Meath, Kildare and Wicklow, along with a significant new data centre development taking place in Cork. In fact, there are currently 21 new data centres planned to be developed outside of Dublin.

Bisnow: What achievable tweak would you make to the property sector in 2023 to make it a better place?

McClean: If I had a magic wand and could make a tweak in a property sector next year it would have to be in the residential sector. There are deep flaws both in the antiquated planning system and the excessively high government tax take expectations from the residential sector.

The reality is that many developer-owned sites are just not economically viable to develop given the substantial tax and planning contributions, along with increasing interest rates and the spiralling cost of construction. 

On a fundamental level, we are attempting to have a prosperous, 21st-century city in Dublin with the planning laws, population density and building heights of a city in the 1800s. The numbers simply do not add up, and the severe social consequences of these decisions (particularly for young people) will be with us for years to come. 

Bisnow: What is your top ESG tip for building owners or property companies?

McClean: 'Brown-to-green' refurbishment for offices in 2023 is definitely one I have my eye on. As secondary office pricing moved out towards the end of 2022, while simultaneously we are finally seeing inflation moderate, the increased viability and potential returns to the strategy may start to draw attention.

This would also mesh well with many governments’ emphasis on refurbishment and retrofitting, as opposed to new development to prevent the release of embedded carbon and improve the environmental impact of the sector more generally.

Bisnow: What is the deal everyone will be talking about this year?

McClean: That’s a really difficult question, as there’s a few potential big deals across multiple sectors. On the capital markets front there’s talk of some big retail, office and residential trades next year, with vendors trying to gauge the market for opportune time to launch. 

On the logistics front there’s some substantial build-to-suit requirements of over 300K SF and the largest speculatively developed logistics facility, Building 2 Greenogue Logistics Park, extending to 287K SF, is expected to exchange this January.


Cushman's Ed Fitch

Ed Fitch, Partner, Cushman & Wakefield EMEA Hospitality

Bisnow: If the real estate sector in 2023 was a song, film or TV programme, what would it be?

Fitch: I’d like to say something highbrow like War & Peace ... something relatively turgid! But in the more holiday spirit and because I watched it the other night, Planes, Trains and Automobiles ... slow start, incredibly frustrating but in the end gets to where we want to be, ie transactions happening again.

Bisnow: Who will be the property hero of 2023?

Fitch: Can I say the valuers? They have a pretty thankless task at the best of times and don’t get the recognition and valuing in this market must be no joke, battling the various pressures with such little evidence. Especially Emma Reardon who runs our Ireland trading property valuations team, she does a great job and deserves the recognition. I think 2023 will put the valuation teams in the spotlight more and their advice will be crucial.

Bisnow: What achievable tweak would you make to the property sector in 2023 to make it a better place?

Fitch: On a wider level, while I’m an advocate of flexibility, I think we are better when we’re together so the making of the workspace somewhere you really want to be is important. Surprisingly, the property sector with the talent available, hasn’t really done this. Little things like changing rooms so team members can walk or cycle, for example, to more widely harnessing lessons from hospitality to make a really attractive space so that we lead by example. For hotel real estate, I think there is so much we can collectively do, from migrant housing to offering unused spaces to nonprofits/community, etc.

Bisnow: What is your top ESG tip for building owners or property companies?

Fitch: For hotels, we are big users but that’s got to be seen in the context of providing the experience the guest pays for. Still a lot is in your own control. I’d encourage owners to establish targets and engage staff to achieve them, including training on behavioural operational changes that can reduce energy, water usage and waste without significant capital expendisture or undermine guest experience. 

I’d also encourage going that extra step and commissioning a holistic ESG audit that will help people to identify gaps and opportunities and establish a product improvement road map towards genuine credentials. We have a superb team dedicated to helping hotel owners do this and I’d recommend getting in touch with Borivoj Vokrinek in our team as he’s truly passionate about helping on this.

Bisnow: What is the deal everyone will be talking about this year?

Fitch: It will probably come towards the end of the year and instinct says it will involve extended-stay in some way, shape or form.

Bisnow: How will hotels perform in terms of ROI in 2023 and why?

Fitch: For hotels, the income side of the equation isn’t the worry, although there are pressures from energy in particular, but inflation is normally a friend of the sector. Debt availability, cost of debt and pricing are the bigger concerns, and I’d expect some owners facing a refinance event to need to dig deep for extra equity.


Lisney's Emma Coffey

Emma Coffey, Director, Lisney

Bisnow: If the real estate sector in 2023 was a song, film or TV programme, what would it be?

Coffey: Life is a Rollercoaster. As an agent in the retail sector of the market it feels like you are on a constant rollercoaster with transactions being agreed and falling through.

Bisnow: Who will be the property hero of 2023?

Coffey: Jerome Powell — once he stops increasing interest rates in the U.S., it’s a signal that we’re near the end of increases in Europe.

Bisnow: What achievable tweak would you make to the property sector in 2023 to make it a better place?

Coffey: More open and honest discussions around rental deals, incentives, abatements and write-offs of arrears so there is full transparency.  It would make for a much more real market and save everyone a huge amount of heartache down the line.

Bisnow: What is your top ESG tip for building owners or property companies?

Coffey: Ignore it at your peril.

Bisnow: What is the deal everyone will be talking about this year?

Coffey: Hopefully the deal that ended the Ukraine war.

Bisnow: How will retail perform in terms of ROI in 2023 and why?

Coffey: I think we'll see first-half stagnation — with rising interest rates, energy costs, labour shortages, supply chain issues retailers will go through a period of reflection to see if their business is viable and as they have done in the past make the necessary changes required. They are now past masters.

In the second half, I hope we'll see an upswing as the opportunists emerge to reap where they can.