Expectations Of A Busy Season Ahead In The Irish Commercial Property Market
Dublin, 1st September 2011 – Property consultants CB Richard Ellis today released their latest bi-monthly report, commenting on the latest trends and transactions in all sectors of the commercial property market in Ireland.
To download a PDF copy of the full CBRE_Bi-Monthly Research Report_Sept 2011 please see the link further below.
According to the new report, although transaction volumes in all sectors of the Irish commercial property market slowed somewhat during the traditionally quiet months of July and August, activity in the occupier sectors of the market is holding up well as occupiers take advantage of the ability to negotiate favourable deals with landlords. An increasing number of development sites and hotel properties are now being brought to the market and sales are materialising for these properties in cases where vendor’s price expectations are realistic. However, the investment sector of the Irish market remains paralyzed primarily as a result of ongoing uncertainty about impending Government reform of upward only rent reviews.
According to the property consultants, values in the commercial property market continued to adjust downwards in recent months to reflect the possibility of more conservative future cash flows. Having shown some signs of stabilising before potential rent review reform was first mooted earlier this year, Irish capital values declined by 7.6% in the first half of 2011, bringing the total peak-to-trough deterioration in values to more than 63%. Despite the dearth of transactions in the investment sector of the market, CB Richard Ellis expect a busy Autumn season in the occupier sector although they say that most of this activity is opportunistic with 10 year leases with five year break options now the norm.
Despite ongoing economic concerns and the turmoil on world financial markets in recent weeks, a considerable number of office lettings were signed in the Dublin office market during July and August.
Last years annual office take-up of 130,000m2 or 1.4 million square feet in Dublin should be matched in 2011, if not exceeded. This represents a very healthy level of activity considering the economic backdrop although much of the take-up is a result of tenants exercising break options and taking advantage of the ability to negotiate very attractive leases in the current climate.
Although the total volume of letting activity in the Dublin office sector is encouraging, several layers of sign off are typically required in all transactions in the current climate which means that getting transactions signed can take several months in some instances. Another frustration at present is the difficulty in obtaining collateral warranties for buildings where original contractors are no longer in existence.
Irrespective of what additional pressures are exerted on consumers in the forthcoming budget, trading in the retail sector of the Irish market is expected to remain difficult for the forseeable future. The ability to negotiate favourable deals with landlords will however continue to drive activity from a property perspective. There are a large number of retailers looking to expand in the Irish market in the short to medium term, which is encouraging.
While prime industrial rents have remained relatively stable at approximately €65 per square metre in recent months, there is still pressure on rental values for secondary industrial properties. Many poorer quality industrial buildings are now being let for storage purposes and while the rents being generated are low, this is reducing availability in some locations in Dublin.
Investors remain focussed on purchasing prime assets in the Dublin market, particularly office properties. Coming up with practical solutions for non-prime, secondary and provincial assets is therefore going to prove increasingly challenging.
Although conditions in the hotel sector remain challenging, the market has undoubtedly improved over the last six months and from a property perspective, there has been an improvement in transactional activity as vendors realise that there is nothing to gain by delaying the sales of properties. A number of high-profile hotels are expected to be brought to the market this Autumn. Purchasers will emerge for these assets if the vendors have realistic price expectations.
In Galway, the Kinlay Hostel has recently been sold on behalf of a receiver. The property had a guide price in excess of €2 million. In the pub sector, the leasehold interest in the Bailey Bar in Dublin 2 recently changed hands off market for a price in the region of €1 million. The property was purchased by the owners of the Fitzwilliam Hotel following a substantial rent reduction being granted by the landlord. Meanwhile, a deal has now been agreed for the well-known Kestrel pub in Walkinstown
There have now been 23 consecutive months of positive returns achieved in the UK property market. However, the pace of capital appreciation has slowed considerably in recent months. Values continue to rise but at a much reduced pace.
Transaction volumes in the UK investment market have weakened recently. Investment activity in the UK fell to €6.8 billion in Q2, compared to some €11.4 billion invested in Q1 and down 34% on the same period last year. The extended period of sluggish economic growth and rising unemployment is impacting on activity in the occupier markets in the UK and investors are becoming increasingly cautious in light of the turmoil on international markets. However, the decline in investment activity could also be partly attributed to a shortage of prime properties being offered for sale.
There has been a notable increase in the number of development sites being publicly offered for sale in recent months and a number of sites will also be formally launched for sale in Autumn. Demand for sites is now predominantly emanating from discount retailers or special purchasers such as adjoining occupiers. With liquidity remaining constrained, most are cash buyers.
£28.1 million was spent in the investment market in Northern Ireland in the first half of 2011 and there is still considerable interest from institutional investors for prime investment opportunities in the region. However, demand is primarily focussed on small lot sizes. Hermes Real Estate and Westfield are currently reviewing the bids received for the Castlecourt Shopping Centre in Belfast. Despite the large lot size, there was interest from three funds for this asset. However, the sale may be pulled as the vendors are reportedly disappointed that the bids werent close to the 7.5% yield anticipated.
Commenting on the launch of the September bi-monthly report, Marie Hunt, Director of Research at CB Richard Ellis, who compiled the report, said “As we enter the traditionally busy Autumn season, there is an encouraging level of activity ongoing in the occupier sectors of the Irish commercial property market, albeit much of this activity is opportunistic as tenants strive to drive bargains. A number of high-profile hotel and development properties will be coming to the market over the coming months and where pricing is realistic, sales will materialise. However, until such time as Government unveil their proposals regarding reform of rent review clauses in business leases, transactional activity in the investment sector of the Irish market will remain constrained and prices and pricing will remain compromised. Despite the paralysis in the investment sector of the market, office, retail and industrial occupiers continue to negotiate favourable terms and conditions from landlords meaning healthy levels of take-up are expected to be achieved in the occupier sectors of the market, particularly in Dublin”.
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CONTACT: Marie Hunt,Executive Director Ireland
+ 00 353 1 6185543 / + 00 353 87 2727115
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