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Business Post: 5th January 2025
Investment opportunities in alternative sectors rather than the traditional sectors highlights the need to stay ahead of emerging trends, says Iain Sayer, HWBC’s managing director.
As we enter 2025, the Irish real estate market presents distinct opportunities for investors, alongside clear risks in certain sectors.
Retail will continue its resurgence, offering chances to take profits, while prime offices and alternatives such as sheltered living continue to show promise.
In contrast, secondary office buildings and parts of the residential market remain under pressure, with structural issues and pricing challenges demanding caution.
The outlook means investors must navigate these complexities, focusing on sectors with strong fundamentals where possible and acting decisively when opportunities emerge.
Offices: Loss of traction
The office market has been marked by a significant recalibration in recent years, and 2025 is unlikely to offer any dramatic turnaround.
Dublin’s office market, in particular, has long been influenced by decisions made in the US. Given the current political backdrop, many large US corporations are expected to pause on international office decisions as they await clarity on the policies incoming president Donald Trump will pursue.
Suburban office assets that have been refurbished to LEED Gold, Grade A standard, such as The Hive in Sandyford, the leasing of which is handled by HWBC, will remain in high demand in 2025.
This pause will impact demand at the top end of the office market, even as local demand and return-to-office policies keep the vacancy rate in check. Prime A-rated office spaces will remain in high demand, with take-up likely reaching about 2 million square feet as occupiers lease the remaining and any new high-quality spaces.
Non-Tier 1 office spaces face a more challenging outlook. With rising vacancies in older or poorly located properties, lenders’ patience is wearing thin. We expect an increase in receivership processes for such assets as valuations continue to fall, leaving owners unable to refinance or sell.
The €100 million-plus investment deals that once defined the top of the office market are unlikely to materialise. Investors in this category have been resistant to current market pricing for a number of years now, and the prolonged stalemate shows no signs of ending any time soon.
Retail: back in favour
Retail is likely to make a notable comeback in 2025. The steady improvement of the consumer economy has reignited confidence, and we expect to see a corresponding rise in retail rents and a contraction in yields. These dual forces will significantly enhance valuations, rewarding the early investors who entered the market during the past three years.
With this upward momentum, we are likely to witness some profit-taking in the retail sector as these early investors look to capitalise on their gains.
The improved market conditions may also drive further portfolio trades, particularly in well-located retail assets that are now delivering consistent returns. For investors, now could be an opportune time to seize the benefits of a sector that is steadily climbing back into favour.
Industrial and Logistics: steady as she goes
The industrial and logistics market continues to demonstrate resilience, driven by solid rental growth and piecemeal development activity. With build-to-suit projects being the preferred method of construction, rental prices are expected to remain on an upward trajectory, closely tracking rising construction costs.
At the smaller end of the market, however, portfolio aggregators may begin to pull back. The relentless yield contraction in this segment has started to weigh on returns, making it less attractive for investors seeking strong growth.
Still, the fundamentals of the market remain sound. We would sound a cautionary note on the depth of tenant demand away from the very best high bay space however, the sector is set for steady, if not spectacular, performance in the coming year.
Residential: trouble ahead
The residential market is grappling with structural challenges that are unlikely to ease in 2025. On the occupational side, the persistent undersupply of housing will continue to exert upward pressure on rents and prices, leaving both renters and owner-occupiers with limited options.
The Land Development Agency (LDA), the State’s affordable housing body, has started to deliver cost rental and affordable homes and has been promised significant levels of funding as a result, but it will take time for it to reach a point where its annual output has a significant impact on housing need.
Meanwhile, private developers are continuing to manage high costs, infrastructure delays and planning delays with some of the biggest now working closely with the LDA to deliver cost rental apartments under the Government’s Project Tosaigh initiative.
Whilst we await the formation of the new Government and confirmation of policy we can not foresee a change in the current concentration on supply side stimulus and it seems unlikely that current rental caps will see much amendment. It is worth noting that there are very few sectors offering 2 per cent per annum rental growth.
On the investment side, things are becoming increasingly uncertain. Larger residential investments are expected to come to market, providing much-needed clarity on pricing. However, it is also likely that we will see the appointment of receivers for some assets as investment pricing fails to meet expectations. This could mark the beginning of a shake-out in the sector, with underperforming properties facing growing scrutiny.
Alternatives: What’s next?
As investors seek opportunities beyond the traditional sectors, alternative assets are becoming an increasingly important part of the real estate landscape. Among these, sheltered living is attracting significant interest due to its potential for long-term growth and stability particularly as the Irish population starts to age.
Investment in alternative sectors, particularly in state-driven niches like childcare— and the international protection market in the near term, could hold lucrative opportunities for early investors
We also expect to see further consolidation in the childcare sector as additional government subsidy works it’s way into the market.
However, in the near term, the real money will likely come from assets servicing the international protection market.
As Ireland navigates its evolving approach to this issue, we anticipate a shift in state policy post-election in favour of purchasing properties outright rather than renting them.
This pivot could create both risks and opportunities for investors in this niche market.
Buy/Sell: strategic moves for 2025
Retail’s rebound offers a chance to capitalise on rising rents and improving valuations, but timing will be key for those seeking to make gains.
Similarly, industrial and logistics remain stable, though rising costs and yield compression call for careful selection.
Buying the worst office on the best street remains as good a piece of advice as always, we expect to see quality win out and secondary markets suffer. Gains will be made by those in a position to supply new stock in the right places.
Meanwhile, opportunities in alternatives—particularly in state-driven niches like childcare—highlight the need to stay ahead of emerging trends.
In a market undergoing transformation, adaptability and strategic foresight will be critical. Investors who move decisively while balancing risk and reward will position themselves to thrive in 2025 and beyond.
Iain Sayer is managing director of HWBC