The total negative return of the MSCI/SCSI Ireland Quarterly Property Index for the third quarter was 2.1% quarter-on-quarter, representing a fifth consecutive negative quarter.

A 3.3% fall in capital values was only partially offset by the 1.2% income return from rents, MSCI said, and on a rolling 12-month basis, the negative annual total return was 9.5%, the lowest since the midpoint of 2010.

On a sector level, the annual total returns were all negative, ranging from 2.3% for industrial properties to 12.6% for offices, with retail at 3.5%.

MSCI said that the office sector accounts for circa 66% of the index by capital value, so it has the largest weighted impact on the overall index return.

However, Ireland’s negative investment trajectory was typical of much of Europe, with commercial real estate registering the seventh consecutive quarter of falling investment continentwide, according to the latest Europe Capital Trends research from MSCI Real Assets.

The volume of completed transactions in Europe fell 57% in the third quarter from a year earlier to €32.8B, the weakest activity since 2010, taking overall investment in the first nine months of the year to €119B, less than half the level for the same period in 2022.

Pending transactions at the start of October, usually a reliable indicator of sales in the final quarter of the year, were the lowest since 2011.

Ireland was ranked 16th for activity among Europe’s real estate markets, with €286M of transactions completed in the third quarter, down 88% compared with the same period a year earlier. On a nine-month basis, there were €1.8B in sales of commercial properties, 70% less than the equivalent period a year earlier.

“The exceptionally rapid increase in interest rates meant that property went from keenly priced at the end of 2021 to overpriced by the end of 2022,” MSCI Head of EMEA Real Assets Research Tom Leahy said of the European sector. “Low liquidity and volatility in bond markets have complicated the price discovery process for property, causing a wide disconnect in expectations of buyers and sellers, with negative consequences for transaction activity.”

Paris remained the year’s top European investment destination, and MSCI reported some areas of “relative resilience” amid the general slowdown, with sales of warehouses and senior housing in the first nine months of 2023 around the averages recorded in the pre-pandemic period between 2015 and 2019. Hotels were the least affected category, down 11% in the first nine months from a year earlier.

“Distress is often what breaks the liquidity logjam by bringing price discovery, but at the moment, we are still some way off from that being widespread,” Leahy said.