SIGNS OF IMPROVEMENT IN THE IRISH COMMERCIAL PROPERTY SECTOR
3 May, 2010 | The Dublin office of CB Richard Ellis Group (“CBRE”), the international commercial real estate firm, today launched their latest bi-monthly assessment of conditions in the Irish commercial property market. The May 2010 update outlines that while conditions generally remain challenging, there are definite signs of an improvement in sentiment and activity in some sectors of the market in recent months.
► Improvement in overall activity on quarterly and annual basis
► Prime rents and yields have stabilised and total returns in Q1 2010 were positive for the first time in over two years
► Rents on secondary industrial accommodation continue to fall dramatically
► Increasing appetite for good hotel properties in prime locations subject to realistic valuations and the availability of funding
Marie Hunt, Director of Research at CB Richard Ellis said, “While transactional activity in the commercial property market is still performing below capacity, activity in all sectors of the market is up on a quarterly and on an annual basis, which is encouraging. Considering the underlying level of activity in each sector, particularly the investment market, we expect to see further improvement as the year progresses. Prime rents and yields have now firmly stabilised and total returns from Irish commercial property in Q1 2010 were positive for the first time in over two years”.
Guy Hollis, Managing Director at CB Richard Ellis said, “We are very encouraged to see signs of increased activity in the economy beginning to have a direct impact on take-up activity in the commercial property market. We are also seeing the signs of much more activity in the domestic investment market. With the latest IPD figures moving into positive territory, retail sales improving marginally and NAMA now starting to gain some momentum, markets are beginning to stabilise and we can now look forward to the long road to recovery which will inevitably follow”.
According to the report, there has been a notable improvement in enquiry levels and viewings in the Dublin office market in recent months, with a large proportion of demand emanating from the IT and pharmaceutical sectors. Take-up of office accommodation in the first quarter of the year reached almost 25,000m2 and the property consultants are confident that last years annual take-up level of approximately 78,500m2 will be beaten in 2010. However, CB Richard Ellis say that many of the companies that are looking for new office accommodation in the capital are subsequently seeking to relet their existing premises, meaning that the stock of vacant office properties remains stubbornly high. According to the report, prime headline rents in Dublin city centre have stabilised although they say that rents in outlying locations without adequate transport links continue to come under downward pressure.
The new report says that retailers are reporting some improvement in activity in recent weeks as was confirmed by the most recent release from the Central Statistics Office. The property consultants continue to witness retailers looking for relocation and expansion opportunities around the country. They point out that while retailers entering new leases can avail of competitive terms and conditions in the current climate, retailers who signed leases at the peak of the market continue to struggle with high rental costs.
Take-up in the industrial sector of the property market is holding up well according to CB Richard Ellis who report that at almost 58,000m2, the quantum of industrial letting activity recorded in the first three months of 2010 in Dublin was approximately three times higher than that achieved in Dublin during the same period last year. However, the property consultants say that Q1 take-up was skewed by two large transactions and the reality is that most of the activity in the industrial market at present is made up of small short-term lettings. Most of the activity in this sector of the property market is emanating from companies seeking to take advantage of the competitive terms and conditions on offer in the market. While downward pressures remain, CB Richard Ellis say that rents for prime industrial accommodation appear to have now stabilised at approximately €86 per square metre. However, they say that rents on secondary industrial accommodation continue to fall dramatically with opportunistic occupiers willing to compromise on building quality and in some cases efficiency in order to cut costs.
CB Richard Ellis say that there has been a notable increase in activity in the Irish commercial property investment market in recent months but this has yet to translate into transactional activity. According to their research, only €19 million was transacted in the Irish market during the first three months of 2010. However, they say that there are up to €500 million of transactions being negotiated at present so they expect to see transaction volumes improve considerably in Q2 and Q3. Prime yields have firmly stabilised in all sectors of the Irish market, and the most recent data from the Investment Property Databank (IPD), confirms that total returns in the Irish market actually increased by 0.4% in the first quarter of 2010 – the first positive return in over two years, which CB Richard Ellis say is encouraging.
Recent data from the Investment Property Databank (IPD) on the UK market shows that the capital value of UK property rose 1.6% in March, equating to cumulative capital growth of more than 13% over the previous eight months. CB Richard Ellis say that despite the turnaround in performance in the UK market, strong appetite from a range of buyers and an improvement in the volume of stock being offered for sale, transaction volumes in the UK have yet to improve significantly. They say that private overseas buyers and institutions are all seeking out investment opportunities in the UK and the bulk of demand remains firmly fixed on London despite the very significant price adjustments that have taken place in recent months. Yields for prime office investments in the West End are now in the order of 4.25% while prime yields in the City of London are in the order of 5.5%, which CB Richard Ellis says means that much of the yield adjustment has already taken place which is making it difficult to find value in the London market. Their research indicates that there is currently as much as £3 billion of property assets being offered for sale in London City of which approximately 20% is being brought to the market on the instruction of banks. Some of these financial institutions are amenable to taking a stake in the properties and benefiting from any potential upside.
A number of development sites continue to be offered for sale on the instructions of receivers and liquidators. However, CB Richard Ellis say that completions are still few and far between with potential buyers limited to those prepared to invest cash funds to secure sites. A number of retail site sales are proceeding subject to planning but have not yet completed.
Following two years of very little activity in the hotel property sector, which the property consultants say is primarily due to a lack of bank funding, the sale of Chief O’Neill’s Hotel in Smithfield in Dublin 7 has now completed for between €8 million and €9 million. CB Richard Ellis says that funding for hotels remains difficult to source. However, with more banks realising that hotel sales can be achieved if they remain on board to fund the new purchasers on proper commercial terms, they expect to see a number of other hotel sales being negotiated over the course of the coming months. CB Richard Ellis says that there is genuine appetite for good hotel properties in prime locations subject to realistic valuations and the availability of funding. There are no sales transactions being completed in the pub sector at present with the focus of attention on leasing. The former Spawell premises in Templeogue have been leased in recent weeks. The property, which will trade as Darcy McGee’s, generated considerable interest due to its size and location. A letting has also been agreed recently by CB Richard Ellis on The Viper Room on Aston Quay.
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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 2009 revenue). The Company has approximately 29,000 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. CB Richard Ellis has been named a BusinessWeek 50 “best in class” company for three years in a row. Please visit our website 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 100 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 top 50 Best Workplaces in Ireland, 2010, for the sixth year running. Please visit our website at www.cbre.ie or www.cbre.ie/ni