The two most popular sectors in Irish real estate are set to see a contraction in investment, with other sectors coming to the fore, a new report says.

Investment trading momentum will return to the market later in the first half of 2023 based on the capital already raised, the strong fundamentals of the Irish market and the quality of product that is coming for sale.

In its Market Outlook 2023 overview, adviser CBRE reported Irish investment assets are still viewed “incredibly favourably” in a European context, underpinned by an attractive economic outlook, despite the elevated base rate and the uncertainty around financing costs.

The advisory firm highlighted healthcare, grocery-led retail and logistics as the likely winners in 2023, while offices and residential will see continuing strategic investment but less capital employed than in 2022.

CBRE predicted that the ongoing contraction in pricing will present buying opportunities for those with a long-term outlook and capital to deploy and said that stabilisation in interest rates as the year progresses should offer more visibility on financing costs.

While it expected yields on Irish real estate assets across sectors to come under pressure, yield expansion on Irish assets should be softer than the pricing impact experienced on assets in other major European cities, CBRE said.

It attributed this in part to the higher yield that Irish assets trade at historically, and the relative spread to the risk-free rate (government bonds).

CBRE predicted full-year volumes in 2023 to be lower than in 2022 and to trend closer to the 10-year annual average.

The primary investment strategy in Irish real estate in recent years has centred around long-term, secure and stable income for pension or mutual funds. However, as pricing has started to readjust, CBRE expected more value-add and core-plus strategies to come into focus, including ‘brown-to-green’ refurbishments, particularly for Dublin offices.

It also anticipated some opportunistic acquisitions, though the profile of the Dublin commercial market is more international and institutional than in previous cycles, which will limit these opportunities.

It cited healthcare as an in-demand asset class again in 2023 given its defensive nature and inflation-linked rents. This will also be the case for supermarkets and grocery-led retail.

Logistics investment opportunities will continue to be sought after this year. Strong momentum in the occupational market and the practical completion of new modern stock in 2023 should translate into opportunities for investors, CBRE said.

Office investment product will continue to be keenly sought after, although investors will be “more strategic in selecting opportunities”, CBRE said. The firm expects the residential sector to continue to attract capital, but the forward-structured nature of many transactions will negatively impact the level of capital deployed.