Real estate

The Irish Real Estate Market: Trends, Challenges, and Opportunities

by
Daniel MEAGHER

In this article, Daniel MEAGHER (Trinity College Dublin, BESS Final Year, 2021-2025) explains the Irish Real Estate Market with its trends, challenges, and opportunities.

Ireland’s real estate market is at a critical crossroads. With housing shortages, soaring demand, and institutional investment set to surpass €3 billion in 2025, the sector has never been more pivotal. As the country balances rapid urbanisation, sustainability goals, and affordability challenges, its property market continues to shape Ireland’s economic future.

About the Irish Real Estate Market

Ireland’s real estate market remains at the core of its economic growth, driven by a growing population exceeding 5 million, strong foreign direct investment (FDI), and attractive tenant profiles. However, persistent challenges, including housing shortages, price inflation, and planning inefficiencies, continue to hinder progress.

Housing for All Targets vs. Demand

Housing for All Targets vs. Demand.
Logo of ZEBOX
Source: Sherry FitzGerald Research/DHLGP.

A significant factor behind Ireland’s sustained real estate demand is its status as a leading hub for multinational corporations in the European Union. Following Brexit, companies relocating their European headquarters to Dublin have further strained the office market. Tech giants such as Google, Meta, and Amazon occupy prime spaces in Dublin’s docklands, contributing to rising rental yields in the office sector.

Investment Landscape

Despite global macroeconomic uncertainties, Ireland’s real estate sector remains a highly attractive destination for institutional investors. In 2024, CBRE reported a 30% increase in investment transactions year-on-year, totalling €2.4 billion. While this figure remains 40% below the 10-year market average, the trajectory is positive, with investment activity expected to surpass €3 billion in 2025.

Key Highlights

  • Multifamily Residential: 4.75%
  • Prime Offices: 5.00%
  • Industrial/Logistics: 5.00%
  • Student Accommodation: 5.00%

Source: Savills Ireland Investment Market Report

Deep Dive into Key Asset Classes

Multifamily Residential: Institutional investors continue to focus on forward sales agreements in the multifamily sector, particularly in Dublin. These agreements enable developers to secure funding before construction begins, reducing their financial risk. With sustained demand from young professionals and families seeking long-term rentals, this sector provides stable, contracted yields.

Industrial and Logistics: The industrial and logistics sector has emerged as a standout performer, driven by the growth of e-commerce and the need for modern warehousing. In 2024, rents for prime logistics properties increased by 7%, reflecting both limited supply and strong demand from retailers expanding their distribution networks.

Notable Transactions in 2024

  • Eagle Street Partners’ Acquisition of The Square Shopping Centre in Tallaght for €130 million.

    • The Square Shopping Centre, Tallaght.
    The Square Shopping Centre, Tallaght
    Source: The Irish Times.

  • Davy’s Acquisition of the ‘Hexagon Portfolio’ for €74 million.
  • The Sale of Blanchardstown Shopping Centre for €575 million.

    • Blanchardstown Shopping Centre.
    Blanchardstown Shopping Centre
    Source: The Irish Times.

Funding and Lending Dynamics

The exit of KBC Bank and Ulster Bank has reshaped the funding landscape, with non-bank lenders such as Activate Capital and Castlehaven Finance stepping in to provide financing. While these lenders have contributed to addressing some funding needs, the overall resources remain insufficient to meet the scale of demand required to alleviate Ireland’s housing shortage.

Although the ECB reduced its key interest rate to 3.5% in late 2024, mortgage rates in Ireland have remained elevated at 3.95%, posing challenges for developers and buyers alike. Rising borrowing costs have further constrained access to affordable financing for housing projects, exacerbating supply challenges.

To bridge this gap, attracting foreign international capital is essential, particularly for large-scale residential developments. Clearer policies, coupled with targeted incentives such as green financing or support for affordable housing, could encourage sustained foreign investment. Establishing a transparent, investor-friendly framework will be critical to unlocking the capital needed to drive housing supply and address the ongoing crisis.

Sustainability and Innovation

Green Certifications and Standards

Developments in Ireland are aligning with EU environmental targets, particularly those outlined in the European Green Deal and Ireland’s Climate Action Plan 2023. Certifications such as LEED (Leadership in Energy and Environmental Design), BREEAM (Building Research Establishment Environmental Assessment Method), and NZEB (Nearly Zero Energy Building) standards have become benchmarks for new and existing properties. These certifications not only improve the sustainability of properties but also enhance their marketability to tenants and investors who are increasingly seeking environmentally responsible spaces.

Technological Advancements in Real Estate

  • Smart Building Technology: Modern real estate developments are incorporating smart technologies to optimise energy use and improve efficiency. Smart sensors, for example, monitor energy consumption and adjust heating, cooling, and lighting systems based on real-time needs, reducing operational costs and environmental impact.
  • Renewable Energy Integration: Solar panels, wind turbines, and geothermal systems are becoming common features in larger developments. These systems not only reduce carbon emissions but also appeal to tenants and buyers looking for lower energy costs and greener living environments.
  • Retrofitting Older Buildings: Retrofitting has become a significant focus for investors and developers. Many older properties, particularly in Dublin, are being upgraded with better insulation, energy-efficient windows, and renewable energy systems to reduce their carbon footprint and extend their life span.

Long-Term Resilience and Value

Sustainability initiatives not only reduce environmental impact but also future-proof investments against tightening regulations and rising energy costs. Green-certified buildings tend to attract premium tenants, enjoy lower vacancy rates, and command higher rental yields, making them a strategic choice for investors.

Why Should I Be Interested in This Post?

This article provides essential insights for students and professionals seeking to understand Ireland’s dynamic real estate market, offering perspectives on key trends, challenges, and future opportunities.

Related Posts on the SimTrade Blog

   ▶ Arthur EVERARD My experience as a Strategic Consultant at SGS

   ▶ Clément KEFALAS My experience of Account Manager in the office real estate market in Paris

   ▶ Ghali EL KOUHENE Asset valuation in the Real Estate sector

Resources

CBRE Ireland Real Estate Market Outlook 2025

Sherry FitzGerald Irish Residential Market Review Autumn 2024

EY Ireland Real Estate Funding and Investment Trends

About the Author

This article was written in January 2025 by Daniel MEAGHER (Trinity College Dublin, BESS Final Year, 2021-2025).

My professional experience as a property manager assistant at Urban Premium

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My professional experience as a property manager assistant at Urban Premium

Lilian BALLOIS

In this article, Lilian BALLOIS (ESSEC Business School, Bachelor in Business Administration Program, 2019-2023) shares his professional experience as a property manager assistant at Urban Premium.

About the company

Founded in 2010, Urban Premium specializes in the structuring and management of real estate investment trusts (REITs). The company specializes in the management of residential and commercial SCPIs (Société Civile de Placement Immobilier). A SCPI is a collective investment undertaking in the form of a company that is not listed on the stock exchange. SCPIs collect money from many investors with the sole aim of acquiring and managing a property portfolio for rental. Urban Premium specializes in inner-city real estate investment, incorporating attractive tax incentives like “Pinel/Denormandie”, “Malraux” and “Déficit Foncier”.

The Pinel and Denormandie instruments offer tax reductions for the construction or renovation of real estate in specific areas of France, based on the duration of the lease.

The Malraux Law promotes investment in high-quality real estate, often in city centres and protected areas, offering an income tax reduction.

The Déficit Foncier allows for reducing tax pressure by generating a deficit through investments in properties requiring renovations, deductible from rental income.

Logo of Urban Premium.
Logo of Urban Premium
Source: Urban Premium

As a property manager assistant, I was able to work alongside the front office managers. It was the central unit within the company, and it was responsible for implementing the investment strategy in line with tax incentives (Pinel/Denormandie, Malraux, and Déficit foncier). The front office was made up of one Managing Director, 5 managers and me.

In addition to these responsibilities, our department played a crucial role in managing funds and making strategic decisions. This involved overseeing the allocation of resources across various investment channels, ensuring optimal utilization of available funds while adhering to risk management protocols. Furthermore, our team engaged in market research and trend analysis to identify opportunities.

My internship

I had a 6-month internship at Urban Premium as an assistant property manager.

My missions

During my 6-month internship from September 2022 to February 2023, I engaged with multiple investment opportunities and projects. I took on the responsibility of analysing and crafting pitch-books for weekly meetings with managers when investment opportunity booklets were received. In addition to this, I had to monitor the accounting sheets of the real estate funds, analyzing, and providing insightful comments on their performance. While also overseeing fundraising to a lesser extent, my internship enabled me to understand the complexities of regulatory compliance concerning tax incentives for real estate finance and portfolio management within my company.

Required skills and knowledge

To be able to work in a real estate investment fund, it is necessary to have certain key skills:

  • Financial analysis to assess the profitability and viability of real estate investments.
  • A certain degree in accounting knowledge to understand and manage financial sheets. Particularly, you need a good knowledge of property valuation and lease accounting.
  • The ability to implement and analyse benchmarks to evaluate investment performance relative to the market.
  • Some background knowledge of the mechanisms of real estate markets and investment strategies.
  • Excellent communication skills to collaborate effectively with team members, partners, and investors.
  • Mastery of IT Tools, notably Excel.
  • Especially for the fund in which I was employed, knowing the principles of the different tax systems (Pinel, Malraux and Déficit Foncier).

What I learned

During my internship at Urban Premium, I learned new concepts and solidified the knowledge I already had. The hands-on experience provided through my internship gave me understanding of the management of real estate investment portfolios. Other important aspects of my internship were analyzing and contributing to the assessment of investment opportunities, navigating the complexities of project financing, and honing my skills in financial analysis.

Financial concepts related my internship

(Real estate) Financial analysis

Real estate financial analysis is the process of evaluating the financial aspects of property investments. It involves a comprehensive examination of various financial metrics and considerations to determine the profitability and feasibility of a real estate venture. This analysis encompasses factors such as property values, rental income, operating expenses, financing costs, and potential returns on investment.

Investment opportunity evaluation

Evaluation of an investment opportunity is the process of assessing the viability and potential returns of a specific investment. It involves an analysis of financial data, market trends, risks, and potential rewards. This evaluation aims to provide decision-makers with an understanding of the investment’s feasibility and align it with the overall goals and strategies of the investor or organization.

Portfolio Management

Portfolio management is the strategic and systematic process of overseeing and optimizing a collection of financial assets (real estate in this case), known as a portfolio, to achieve specific investment goals.

Why should I be interested in this post?

This post provides insights into the professional experience of working as a property manager assistant at a real estate investment trust (REITs) and managing residential and commercial SCPIs. It delves into real estate finance, including French tax incentives such as “Pinel/Denormandie”, “Malraux”, and “Déficit Foncier”. Additionally, the post outlines the responsibilities and skills required for working REITs, making it a must-read for anyone interested in pursuing a career in this field or seeking to enhance their knowledge.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Arthur EVERARD My experience as a Real Estate Analyst at Eaglestone

   ▶ Clément KEFALAS My experience of Account Manager in the office real estate market in Paris

Useful resources

Urban Premium

About the author

The article was written in February 2024 by Lilian BALLOIS (ESSEC Business School, Bachelor in Business Administration Program, 2019-2023).

My experience as a Real Estate Analyst at Eaglestone

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My experience as a Real Estate Analyst at Eaglestone

Arthur EVERARD

In this article, Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024) shares his professional experience as a Real Estate Analyst at Eaglestone, a Belgian real estate developer operating in Europe.

About the company

Eaglestone is a real estate developer based in Brussels, Belgium and focused on commercial and residential projects across Europe. Founded in 2014, Eaglestone has already developed over €1 billion in real estate assets including office buildings, hotels, apartments and more. The company currently has around 15 ongoing projects spread across major cities like Brussels, Amsterdam, London and Lisbon. Eaglestone’s business model involves identifying promising development opportunities, securing financing, overseeing construction, and managing/leasing the completed properties.

Logo of Eaglestone.
Logo of Eaglestone
Source: the company.

My internship and missions

During my two-month internship at Eaglestone, I worked on several key projects. I compiled and presented detailed analyses on new London, Lisbon and Brussels investment opportunities (development for offices and residential buildings) to the CEO, including market overviews and financial projections. I visited three ongoing construction sites in Brussels to assist with leasing and sales strategies. Additionally, I reviewed financial models for major projects and provided input on funding options like special purpose vehicles (SPVs) and bullet loans (similar to zero-coupon bonds) to support Eaglestone’s equity and debt needs.

Required skills and knowledge

During my internship, I improved vital hard and soft skills. For hard skills, I honed my Excel modeling for feasibility analysis, project financing and timelines. I also gained PowerPoint presentation experience. Regarding soft skills, I improved at working independently, time management, public speaking and presenting to executives. Additionally, I learned enormously about real estate development operations and strategies. I became comfortable presenting analysis and recommendations to senior leadership. The experience provided me with tangible skills and invaluable exposure to the world of real estate finance.

What I learned

The overview of Eaglestone and my internship experience highlights skills and knowledge applicable to real estate finance and development roles. Understanding how to assess new opportunities, project costs and returns, and different funding sources provides useful perspective for those interested in real estate or project finance analyst positions. The work I completed, and metrics analyzed are directly relevant to finance departments at real estate companies.

Financial concepts related my internship

Three important financial metrics for real estate are return on investment (ROI), cash-on-cash return, and gross rent multiplier. ROI measures the profitability of an investment as a percentage of the total cost. Cash-on-cash return indicates the annual income generated by a property as a percentage of the total cash invested. Gross rent multiplier shows the relationship between purchase price and potential rental income. Tracking these metrics allows developers like Eaglestone to evaluate opportunities, fund projects strategically, and maximize ongoing returns. They provide vital insights into real estate investment performance.

Return on Investment

ROI measures the profitability of an investment as a percentage of the total investment (assets on the balance sheet). It is calculated by dividing net profit by total cost. ROI is useful for comparing different real estate opportunities, as it shows the potential profit per dollar invested. A higher ROI indicates a more profitable investment. Tracking ROI helps developers like Eaglestone allocate capital by comparing projects.

Cash on Cash Return

Cash-on-cash return shows the annual pre-tax income generated by a property as a percentage of the total cash invested. It provides a clear picture of the annual return. Cash-on-cash return demonstrates the ability to recoup the initial investment through ongoing rental or sale income. Real estate investors use this metric to evaluate the short-term returns on a project.

Gross Rent Multiplier

Gross rent multiplier compares the purchase price of a property to the potential annual rental income. It is calculated by dividing the purchase price by the annual rent. A lower gross rent multiplier means the property is more affordable based on the expected rents. This metric helps assess if the acquisition price for a development is appropriate given the usual market rents (used as a benchmark). It is an important consideration in the initial viability of a project.

Example

Please find below an Excel file to illustrate the three concepts above: return on investment (ROI), cash-on-cash return, and gross rent multiplier.

Download the Excel file to compute the present value of a stock

Why should I be interested in this post?

The overview of Eaglestone and my internship experience highlights skills and knowledge applicable to real estate finance and development roles. Understanding how to assess new opportunities, project costs and returns, and different funding sources provides useful perspective for those interested in real estate or project finance analyst positions. The work I completed, and metrics analyzed are directly relevant to finance departments at real estate companies.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Clément KEFALAS My experience of Account Manager in the office real estate market in Paris

   ▶ Ghali El KOUHENE Asset valuation in the real estate sector

Useful resources

Creating tomorrow’s city together – Eaglestone

About the author

The article was written in December 2023 by Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024).

Mon expérience de contrôleuse de gestion chez Edgar Suites

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Mon expérience de contrôleuse de gestion chez Edgar Suites

Chloé POUZOL

In this article, Chloé POUZOL (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) partage son experience de contrôleuse de gestion chez Edgar Suites.

L’entreprise : Edgar Suites

Edgar Suites est une start-up fondée en 2016 par Xavier O’QUIN, Maxime BENOIT et Grégoire BENOIT. Elle propose à ses clients de vivre une expérience au cœur de la ville en logeant dans une suite urbaine : un mix idéal entre appartement et hôtel. Pour cela, l’entreprise loue des locaux initialement occupés par des bureaux, qu’elle transforme en T1 (studio), T2 (2 pièces) et T3 (3 pièces).

Exemple de suite
Exemple de suite
Source: Edgar Suites

En mai 2021, Edgar Suites a levé 104 millions d’euros auprès du fonds d’investissement BC Partners. Depuis cette levée de fonds, l’entreprise a triplé son activité avec presque 150 suites urbaines à Paris, Levallois Perret, Bordeaux, Lille et Cannes.

Logo de l’entreprise Edgar Suites
Logo Edgar Suites
Source: Edgar Suites

Mes missions

En tant que stagiaire, j’ai eu plusieurs missions bien différentes, certaines seulement temporairement et d’autres tout au long de mon stage.

Lorsque je suis arrivée chez Edgar Suites, il n’y avait pas encore de contrôle de gestion mis en place. L’entreprise avait juste quelques fichiers Excel avec lesquels elle faisait tant bien que mal les calculs de chiffres d’affaires (CA) et d’excédent brut d’exploitation (EBE) qui représente le bénéfice d’une société avant les intérêts, impôts, amortissement et provisions (EBITDA pour Earnings before interest, taxes, depreciation, and amortization)…

L’entreprise avait embauché un prestataire extérieur pour construire des fichiers de reporting financier et comptable grâce à un tableur (Excel) et une suite de logiciels qui permettent de transformer des données disparates en informations visuelles, immersives et interactives (Power BI). J’étais chargée de surveiller l’avancée du dossier, de superviser le respect des dates limites (deadlines) et surtout de vérifier la cohérence des fichiers envoyés (écarts, cohérences entre les grands livres, les résultats de l’entreprise (P&L pour Profit & Loss) et les budgets). Cela m’a ainsi permis d’apprendre à maîtriser un éditeur de requêtes de données (Power Query, un des logiciels de la suite Power BI) pour importer des données de l’entreprise dans le tableur Excel.

En plus de cette première responsabilité, j’ai été chargée d’améliorer les fichiers internes de suivi d’indicateurs utilisés pour l’aide à la décision et pour mesurer l’efficacité d’une mesure (KPI pour key performance indicator) notamment le coût au check-in et le coût par équivalent temps plein (ETP) qui est une unité de mesure permettant d’évaluer la charge de travail et la capacité d’un employé.

Réalisation des reportings mensuels

En plus de ces missions, j’étais responsable de la rédaction de tous les reportings mensuels pour BC Partners (le fonds d’investissement auprès duquel Edgar Suites a levé des fonds pour financer son développement) et pour les propriétaires d’immeuble à loyer variable (loyer calculé selon un certain pourcentage du chiffre d’affaires) où il s’agissait de calculer le chiffre d’affaires, les coûts fixes, les coûts variables du mois et ainsi les bénéfices du mois. Je devais aussi m’occuper des rapprochements bancaires (contrôle de la concordance entre les relevés des comptes bancaires et les comptes correspondant dans la comptabilité) et de la gestion des factures qui s’effectuaient à l’aide du logiciel Pennylane.

Réflexion sur la responsabilité sociétale des entreprises (RSE)

Enfin, j’ai également participé à la réflexion sur la responsabilité sociétale des entreprises (RSE) pour prendre en compte les enjeux environnementaux et sociaux d’Edgar Suites. Les dirigeants souhaitent, en effet, être labellisés B-Corp (Benefit Corporation). Une entreprise peut recevoir la certification B-Corp lorsque ses actions sont en adéquation avec les exigences sociales, environnementales et de gouvernance du public. Il s’agit d’une certification qui s’obtient après un long processus. J’ai donc effectué des recherches et conduit des entretiens pour trouver le cabinet de conseil adéquat pour nous accompagner tout au long de ce projet. J’ai également participé aux réunions de réflexion sur les actions d’Edgar Suites afin d’atténuer l’impact social et environnemental de l’activité.

Compétences et connaissances requises pour ce stage

Les principales compétences et connaissances techniques (hard skills) requises sont de maîtriser un tableur comme Excel et d’avoir de bonnes bases en comptabilité et en finance. En effet, pour réaliser les reportings, il était nécessaire de comprendre les données importantes de l’activité pour pouvoir les analyser et les synthétiser. Ces données importantes chez Edgar Suites étaient le coût par check-in, l’EBITDA, les coûts fixes et les coûts variables (notamment les loyers variables). De même, pour faire de la modélisation financière, il est essentiel d’avoir de bonnes connaissances financières afin de créer une logique et une présentation cohérente au sein du fichier.

Enfin, les compétences humaines et comportementales (soft skills) essentielles étaient principalement de savoir travailler en équipe ; cela permet de mettre à contribution les idées et les compétences de tous les membres du groupe pour améliorer le résultat du travail sur l’entreprise.

De façon générale, je suis très satisfaite de mon premier stage que j’ai effectué à la fin de ma première année à l’ESSEC. J’ai été responsabilisée et j’ai pu découvrir le fonctionnement comptable d’une entreprise ainsi que me familiariser avec la finance d’entreprise. En effet, j’ai pu manipuler les états financiers d’Edgar Suites pour me familiariser avec leur lecture et leur analyse. De plus, j’ai pu observer le fonctionnement des finances de l’entreprise : comment l’entreprise gérait ses coûts ; comment Edgar Suites essayait d’améliorer sa rentabilité ; quelles étaient les répercutions sur le plan financier des décisions de management …

Concepts clés

Je détaille ci-dessous quelques concepts clés qui m’ont été utile de maîtriser pendant mon stage :

Contrôle de gestion

Le contrôle de gestion est un service au sein d’une entreprise, chargé d’aider à la prise de décision. Il est responsable de l’élaboration des budgets, de la mise en place de procédures de gestion et de règles, du suivi des résultats, du choix des indicateurs clés dans les tableaux de bord et de la production et la diffusion d’outils de pilotage. L’objectif principal du contrôleur de gestion est d’optimiser les performances matérielles et financières de l’entreprise.

Chiffre d’Affaires

Le Chiffre d’Affaires (CA) correspond à la somme des ventes des produits ou services d’une entreprise. Il se calcule en multipliant les quantités vendues par leur prix de vente. Il s’agit donc d’un indicateur principal sur les performances de l’entreprise.

EBE ou Ebitda

L’Ebitda (Earnings before interest, taxes, depreciation, and amortization) correspond au bénéfice avant les intérêts, les impôts, les taxes, la dépréciation et l’amortissement. Il mesure donc la création de richesse avant toute charge. Il s’agit d’une notion assez proche de l’EBE (Excédent Brut d’Exploitation). Il existe deux formules pour calculer l’Ebitda :

Ebitda = Chiffres d’affaires – achats – autres charges externes – charges du personnel – autres charges

Ebitda = Résultat net + charges d’intérêts + charges d’impôts + amortissements et provisions

Lorsque l’Ebitda est positif, cela signifie que l’entreprise est rentable au niveau opérationnel mais pas forcément qu’elle est bénéficiaire (après la prise en compte d’autres éléments comme les charges financière).

Responsabilité sociétale des entreprises (RSE)

La responsabilité sociétale des entreprises (RSE) correspond à la contribution des entreprises aux enjeux du développement durable. Cela consiste à faire des efforts pour la protection de l’environnement et pour l’amélioration de la société. Ces efforts se font en collaboration avec toutes les parties prenantes (fournisseurs, clients, employés, actionnaires…). Il existe aujourd’hui de nombreuses certifications, comme la certification B-Corp, qui reconnaissent l’investissement des entreprises dans la RSE.

Articles à lire sur le blog SimTrade

   ▶ All posts about Professional experiences

   ▶ Anna BARBERO Career in finance

   ▶ Emma LAFARGUE Mon expérience en contrôle de gestion chez Chanel

   ▶ Ghali EL KOUHENE Asset valuation in the real estate sector

Ressources utiles

Edgar Suites

B-Corp France

A propos de l’auteure

Cet article a été écrit en mai 2022 par Chloé POUZOL (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024). Vous pouvez me contacter via mon adresse mail ESSEC pour plus d’information sur mon stage.

Asset valuation in the real estate sector

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Asset valuation in the Real Estate sector

Ghali El Kouhene

This article written by Ghali El Kouhene (ESSEC Business School, Global BBA, 2019-2022) discusses the valuation methods in the real estate sector.

Definition of a real estate

Real estate is a property, land, buildings, air rights above the land (with certain limitations) and underground rights below the land. The term “real estate” means real, or physical, property. It is the land and its attached constructions that represent a capital good that produces a flow of services over time. Therefore, land includes earth’s surface, lateral support and subjacent support. But it also includes materials under the surface such as substances, minerals oil and gas.

There are four types of real estate assets. First, we find residential real estate. It is a type of leased property, containing either a single family or multifamily structure that is available for occupation for non-business purposes. This includes both new construction and resale homes. Secondly, there is commercial real estate. They are property used exclusively for business purposes or to provide a workspace rather than a living space. All of them are owned to produce income. Thirdly, we can mention industrial real estate. There are generally two uses for industrial properties: companies make things, or they store things. These includes manufacturing buildings and property, as well as warehouses.

Finally, land is real estate or property, minus buildings and equipment that is designated by fixed spatial boundaries. Land ownership may offer the titleholder the right to natural resources on the land. Traditionally it is defined as a factor of production, along with capital and labor.

Importance of the real estate sector in the economy

According to the European Real Estate Forum, the real estate sector has a higher economic importance than several other sectors. Indeed, it makes a major contribution to GDP in the European Union and provides prosperity and jobs. The real estate sector contributed approximately 7% to the USA economy and 12% to the European economy.
Real estate represents the majority of the existing real capital and is particularly relevant too because of its additional function as provision for old age and protection against inflation.

The value of the world’s real estate reached US$281 trillion, the highest figure we’ve ever recorded. Residential real estate accounted for the largest share ($US220.2 trillion) of that huge figure.

Real estate is by far the most significant store of wealth, representing more than 3.5 times the total global GDP. For comparison, financial instruments like equities represent US$83,3 million, which is three times less than commercial real estate.

Global real estate universe in comparison

Source: Savills World Research

Why does the need for property valuation arise?

The need for property valuation arises in many decisions in real estate project like investing, managing, disinvesting and financing. Thereby, valuation is present throughout the life of real estate investment. It is not a unique need for real estate but common to any investment such as stock investment.

There are fundamental characteristics to be evaluated in the valuation process. Characteristics like the use of the asset (commercial, residential, etc.), the location, the antiquity (1st hand, 2nd hand), construction costs and surfaces.

Valuation values

What are the different types of value for a real estate asset?

According to the Royal Institution Of Chartered Surveyors standards (RICS) which offers qualifications and standards recognized in the real estate sector, a value is an estimated amount for which an asset or an obligation should be exchanged at the valuation date between a buyer willing to buy and a seller willing to sell, in a free transaction, after appropriate marketing, in which the parties have acted with sufficient information, prudence and without coercion. This specific definition is declined in several others values like equitable value, fair value or market value. For each value, different methods of valuation are used.

Which methods are used to appraise an asset?

The great diversity of real estate assets must be approached from different approaches in order to determine their value. The existence of comparable assets in the market, the type of use made of them, the cash flows that they may eventually generate, replacement costs or the state of development of the same opens up a wide range of valuation methodologies. In this way we can identify at least six different types of valuation methodologies applicable to the different types of real estate assets that we will classify into at least 14 large groups. The main axes of the valuation methodologies are: comparison, residual, capitalization and cash flows. It is important to know that each type of real estate asset has its preferred method of valuation. For example, the comparison method is mainly utilized for assets for own use (dwellings and premises mainly) and for rustic land. The concept for this method consists in comparing a property of known price and characteristics with the one we want to value. Regarding the discounted cash flow methodology, it consists in determining the market value of a property by estimating the cash flows generated by the property (mainly rents) during a determined period of time and the resale of the investment.

Reading the real estate market requires the development of an information tool. The study of the traditional approach has shown that the reliability of real estate valuation methods is intimately linked to the information available. Information is essential when it comes to asset valuation for each of the different methods (list of rents, the price per square meter etc.). The difficulty in the valuation process does not come from the methodology but from the availability of relevant information. To complete his/her analysis of the real estate deal, the expert can also consider the future instead of the past contained in historical data.

For example, the value of the real estate can be obtained by estimating the growth rate of future rents. Today, artificial intelligence (AI) can be used to develop new valuation models are based on machine learning (ML) algorithm.

How to invest in the real estate sector?

Real estate investment consists of acquiring a property not for the purpose of living in it, but as a savings investment to earn an income from it. It is considered as one of the most stable and profitable investments in the long term. For this reason, investing in real estate is not a trivial gesture: you must know enough about the state of the market and the different investment possibilities not to put your money in risky options.

Several reasons can push you to proceed to a real estate investment. First, it is a great way to build up a tangible and lasting estate. Secondly, investing in real estate enables to finance a property with the aim of making it your main residence later on, by means of rental investment. And lastly, it improves your purchasing power by collecting additional income.

There are several possibilities when it comes to investing in real estate. Among them, there is direct investment which means creating a property portfolio. Indeed, any private individual can firstly invest and acquire a property as a primary residence and later on acquire other properties for the purpose of making a rental investment in order to collect the rents. In the other hand, other types of investment such as indirect investment. The concept of indirect investment consists in buying shares of property company or Real Estate Investment Trust’s (REITS) which aims at the constitution, management and exploitation of a real estate portfolio. Therefore, this company manages real estate assets on behalf of its shareholders. Lastly, a real estate investment company (SCPI) is a collective investment vehicle which is very similar to REITS. Except that in return for this investment, investors receive social shares. Unlike company shares, these units are not listed on the stock exchange. These savings vehicles offer a very good market return in return for a moderate risk.

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About the author

Article written in March 2021 by Ghali El Kouhene (ESSEC Business School, Global BBA, 2019-2022).