Ireland’s Commercial Real Estate Market in 2025

Ireland’s commercial real estate market gained in momentum over the past year, driven by increased activity in key sectors and a reduction in interest rates. Our Banking team explores the factors that boosted market confidence and examines the trends poised to shape a more optimistic outlook for the year ahead.

The last 12 months has seen a number of emerging trends in the Irish commercial real estate (CRE) market. We take a look at some of these changes and consider the landscape for 2025.

Market recovery

Following a sluggish 2023, 2024 saw increased take-up in office space. Some notable deals of 2024 included occupiers Stripe, EY and BNY Mellon acquiring large office spaces. There was also some activity where suburban office assets were refurbished to LEED Gold, Grade A standard, such as The Hive in Sandyford.

While it is anticipated that prime A-rated office spaces will remain in high demand, with take-up reaching 2 million square feet, the secondary office market continues to face difficulties as vacancies continue to rise. A decline in valuations combined with borrowers’ inability to refinance or sell, may lead lenders to look at enforcement options.

Structural factors and geopolitical tensions

Despite a rise in office take up, the Irish CRE market remains exposed to heightened geopolitical and economic risks. Macro issues such as these are further compounded by the ongoing adjustments brought on by structural factors, notably the rise in remote working and the ICT global headcount reduction. These factors have ultimately impacted demand and contributed to a decline in valuations, posing challenges for lenders and investors in the Irish CRE market.

However, on a more positive note, the Central Bank of Ireland (CBI) has reported that the domestic banking system “has capacity to absorb, rather than amplify” the current CRE downturn. The regulator has also noted that the “bank’s buffers of loss absorbing capital are also much larger”. The resilience of the domestic bank system serves as a reassuring factor for borrowers.

Falling interest rates

The Irish CRE market in 2024 showed emerging signs of stabilisation. The European Central Bank’s easing of interest rates boosted the Eurozone economy by incentivising borrowing, spending and investment. Despite increasing inflation in the Eurozone at the end of 2024, further interest-rate cuts are envisaged by the end of 2025. The ECB reported that:

“Conditions in euro area CRE market show signs of stabilisation, with investor demand recovering somewhat, in line with less restrictive monetary policy. However, structural factors… as well as environmental considerations continue to make the outlook for real estate firms challenging”.

For borrowers, interest rate cuts may alleviate some of the difficulties they are faced with when it comes to refinancing existing loans and it may also decrease price pressures. However, the impact of interest rate cuts will depend on how businesses and investors respond in the months ahead.

Dodging the “refinancing cliff”

The CBI reported in June 2024 that “given sharp falls in some CRE valuations experienced in the last two years, loan refinancing in the market is particularly vulnerable to the impact of higher LTVs on banks’ appetite and ability to continue lending”. However, as we highlighted in our previous article, this opens up opportunities for lenders in the private credit space. As the CBI reported in December 2024, private credit growth has strengthened since June 2024 and specialist property lenders account for a large share of the sector’s funding.

In addition, the risks associated with falls in CRE valuations may be contained by a more gradual future maturity profile. In its June 2024 report, the CBI set out that whilst 25% of CRE loans in Ireland had a maturity date of 2024, the medium-term picture is that for the years 2025 – 2028 the maturity cycle is more gradual.

Comment

Despite conditions in the Irish CRE market showing signs of stabilisation, structural factors and geopolitical uncertainties continue to be a challenge for the CRE market in 2025, leaving the Irish economy vulnerable to external shocks. In the absence of a sustained appetite for CRE debt in Irish banks, there is an opportunity for international investors and alternative credit funds to play a role in the next phase of Irish CRE cycle.

For more information and expert advice on navigating the issues impacting the Irish CRE market in 2025, contact a member of our Financial Services team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.