The downward trend in Ireland’s commercial property market has been sharp enough to trigger warnings about potential implications for the wider economy.
In November 2023, the Central Bank stated that although commercial property prices had slumped some 20% since 2020, the knock-on effects were still on the horizon – and could potentially start to bite in 2024 as many investment loans taken out pre-pandemic started to be called in.
Right on cue, investment in commercial property fell to its lowest levels since 2013 in the first quarter of this year, although the market rallied again slightly in Q2. And the issue is far from just a domestic one. The European Central Bank (ECB) has warned that property developers and investors are facing surging losses across the Eurozone, with debt levels higher than they were prior to the banking crisis of 2008 – and a similar risk of contagion across the financial sector.
Such bleak warnings, coupled with the drop-off in demand for commercial property precipitated by the work-from-home phenomenon and a struggling retail sector, could be enough to discourage many would-be investors – and make those with significant property portfolios start thinking about an exit strategy.
But markets ebb and flow, and often the best time to invest is when things hit the bottom of a slump. Prices are certainly more attractive than they have been in a long time. The question is how to mitigate falling demand and the narrowing of revenue opportunities enough to protect your returns.
Here are five tips for making a success of things.
Market research and due diligence
The tougher a market is, the more critical it is to pick your investments wisely. That starts with market research, and picking both where you choose to invest, and the type of property, wisely. Local market trends, demand levels, valuations and future growth potential vary from place to place. It’s important to also look forward as well. Identifying emerging commercial hotspots early is one route to striking lucrative deals.
The next phase is doing your due diligence on any property you target. Even if a particular area looks primed to take off, you need to be sure about the financial health and condition of any property you plan to invest in. Both the building and its accounts should be scrutinised with equal attention to detail. Seek expert financial and legal advice to help gain an in-depth understanding.
Focus on tenant needs
When demand is low, tenants hold all the cards. They can take their pick of under-utilised real estate, and negotiate the most favorable terms. The most successful property investors in a depressed market understand this, and build a strategy around prioritising tenant’s needs. This starts with looking at the types of businesses that are active in the market, and investing in property that meets their needs. It’s also important to be flexible, and be primed to adjust quickly to changing demands.
Pro-active property management
Following on from the above, now is not the time to be an absentee landlord. Meeting tenants’ needs to keep your occupancy rates high is an on-going process. Hiring the right professionals to handle day-to-day operations, tenant relations, and maintenance is crucial. Regular property assessments and improvements help attract and retain quality tenants, increasing property value and rental income.
Build a diverse portfolio
Spreading investments across different commercial property types is an effective strategy for managing risk. In the current climate, looking to diversify across offices, retail spaces, and industrial buildings rather than concentrating on a single market will give you greater stability and resilience, with volatility in one sector offset against stronger performance in another.
Seek professional guidance
As mentioned when discussing the importance of due diligence, seeking advice and assistance from experienced commercial real estate professionals gives you access to invaluable expertise for making the right investment decisions.
At Xeinadin, we understand that navigating the intricate landscape of the commercial property sector requires more than just standard accounting know-how. It demands a deep understanding of the industry’s nuances, a proactive approach to addressing its unique challenges, and a commitment to delivering tailored solutions that drive sustainable growth and success. With decades of collective experience and a proven track record of serving clients across various industries, we bring that expertise to the table.
Speak to an expert
Contact our commercial property team today to find out more.
