Concerns about the impact of Government proposals on the investment sector

Dublin, 1st March 2010 – Property consultants CB Richard Ellis today released their first bi-monthly report of 2011, looking at performance in each sector of the Irish commercial property sector in the first two months of the year.

Please see pdf of the full CBRE Research bi-monthly report at the link below.

According to the new report, the occupier sectors of the commercial property market continue to perform well with occupiers encouraged by the attractive rental deals on offer in the current climate. Strong levels of take-up have been recorded in all sectors since the beginning of 2011.

However, CB Richard Ellis say there are huge concerns about Government proposals to review rent review mechanisms in business leases. CB Richard Ellis say that this proposal as it stands is likely to impact on transaction volumes in the investment sector of the Irish market.

Key Highlights
• Letting activity has continued at pace in the office sector since the beginning of 2011 with as much as 1.2 million square feet or approximately 110,00m2 of office lettings likely to be achieved in the capital in 2011, following a very strong year in 2010.

• The recent acquisition of the 15 storey Montevetro building in Dublin 4 by CB Richard Ellis on behalf of Google, effectively reduces the vacancy rate in the Dublin 2/4 office district from 19.5% to 18.3% and reduces the quantum of new Grade A buildings extending to more than 75,000 square feet in Dublin 2/4 to five buildings.

• Prime headline office rents in the Dublin market have remained stable since the beginning of 2011, currently standing at €345 per square metre, a reduction of almost 50% from peak. Most office lettings being signed at present are 10 year leases, most of which have a break clause at Year 5.

• Activity in the retail sector of the property market has also been brisk during the first two months of 2011, particularly in Dublin shopping centres, where new operators are emerging to occupy vacated units. A number of significant retail announcements have been made in recent weeks.

• There is huge concern in the retail market about the proposals by the incoming Government regarding retrospectively reviewing rental agreements. While CB Richard Ellis acknowledge that many retailers are currently struggling to meet existing rental commitments, they say that instead of implementing a broad brush approach that will ultimately impact negatively on taxpayers, pensioners and indeed NAMA, the best way for the rent issue to be resolved is if landlords, tenants, banks and other stakeholders work together to come up with sensible solutions.

• The uncertainty that the Government proposal on rent reviews is creating has weakened overseas appetite for Irish real estate assets and if introduced, will force values in the Irish commercial property market to fall further.

• The fact that total returns only declined by 2.4% in 2010 compared to 23.3% the previous year suggested that commercial property values were showing signs of stabilisation before these proposals were made. While CBRE say they have no transactional evidence to justify increasing prime yields from current levels, they say that until such time as there is clarity on the Government proposals, the likelihood is that yields will trend weaker.

• The only appetite is for prime assets, of which there are very few properties being publicly offered for sale. The ability to sell secondary properties in a market where liquidity remains constrained and demand is purely focused on prime is very limited unless significant value write down’s are taken.

• Capital values in the UK market started to level off towards the end of last year and while values continue to appreciate on a monthly basis, the pace of appreciation has certainly eased considerably in recent months. Demand is largely focused on Central London. Indeed, there was a 30% increase in transactional activity in the investment market in Central London last year with a total of £9.1 billion invested and 12 transactions with a value of more than £100 million completed.

• In a sector where transactional activity has been very weak for some time, a number of development sites are expected to be offered for sale over the coming weeks. Some of these sales are being affected by the borrowers while other sites are due to come to the market on the instructions of receivers.

• While there were no hotel transactions concluded in the first two months of the year, negotiations are progressing well on a number of properties.

• The big news story in the office sector in Northern Ireland in recent weeks was the announcement that international law firm Allen & Overy intend to locate as many as 300 jobs in Belfast. They are currently in negotiations to lease approximately 4,000m2 of accommodation in the city. This follows London law firm Herbert Smith also recently signing for 1,400m2 of space in the Gasworks, Belfast. Both of these inward investment deals are broadly welcomed.

• Recent research from CB Richard Ellis shows that while there are a large number of potential office schemes in Belfast with planning permission, there is currently only 36,600 square metres of new office accommodation completed and available to let in the city. This equates to slightly more than one year’s average take-up in Belfast.

Commenting on the launch of the March bi-monthly report, Marie Hunt, Director of Research at CB Richard Ellis said “January and February have been busy in the Irish commercial property sector, particularly in the occupier markets where there has been a steady volume of lettings concluded in all sectors and a number of significant transactions currently in legals. Prime rents in all sectors are now down 50% from peak levels and appear to be stabilising. However, the gulf between prime and secondary assets continues to increase, with very limited appetite for secondary properties – a trend that is evident in most markets across Europe. While there are encouraging signs of activity in the occupier markets of the Irish market, the investment sector remains in a very precarious position with overseas investors unlikely to commit to any large-scale purchases of Irish real estate until such time as there is clarity on the new Government’s intentions with regard to rent review mechanisms. This will have the effect of pausing transactional activity in this sector of the market for at least another 12 months, which is hugely concerning”.


Marie Hunt: + 353 1 6185543 / + 353 87 2727115 marie.hunt@cbre.com

About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). The Company has approximately 31,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com

In Ireland, with offices in Dublin and Belfast, CB Richard Ellis is the country’s largest commercial real estate services company, now employing over 140 employees and offering a full range of property services including property sales and acquisitions, leasing and management, investment, corporate services, project management, consultancy, valuations and research. CB Richard Ellis Ireland has been listed among the Best Workplaces in Ireland, 2011, for the seventh year running. Please visit our website at www.cbre.ie or www.cbre.ie/ni

CBRE l Research Bi-Monthly Report March  2011
CBRE l Research Bi-Monthly Report March 2011