Irish Commercial Property Market Values Have Further To Fall
Property consultants CB Richard Ellis say that commercial property values in Ireland have further to fall before transactional activity will improve. According to their Irish Capital Markets Market View report for Q3 2008, which is being released tomorrow, the property investment market in Ireland has come to a virtual standstill in recent months with only limited appetite for properties currently being offered for sale.
The property consultants attribute this to the fact that underlying economic conditions have weakened considerably, potential buyers are having difficulty securing debt-financing and sellers are reluctant to accept the decline in values that occurred since the beginning of the year.
Despite the lack of transactional evidence, CB Richard Ellis believe that yields in the Irish commercial property market effectively increased across the board by at least 100 basis points in all sectors in the first six months of 2008 and contend that values have further to fall. According to Guy Hollis, Managing Director of CB Richard Ellis, Ireland, “Gauging current investor sentiment, it is likely that yields will have to move further if deals are to be agreed between now and the end of the year. We believe that yields may have to increase by another 50 to 75 basis points to attract buyers. This could bring prime retail yields in the Irish market to 4.25% - 4.50%; prime office yields to 5.25% - 5.50% and prime industrial yields to 6.25% - 6.50%. The reality is that there is a weight of money building up for investment in property in Ireland, but not at current pricing. The sooner that yields re-adjust, the sooner liquidity will return”.
According to Marie Hunt, Director of Research at CB Richard Ellis, Ireland, “The market has been characterised by a lack of transactional activity in recent months. Irish investors have signed only €392 million of investment transactions in Ireland in the first half of 2008, compared to €1.9 billion in 2007. A similar trend has been experienced in the UK market, where Irish investors have invested only €795 million in the first six months of 2008 - a dramatic reduction considering Irish investors accounted for €5.5 billion of investment transactions in the UK in 2007”.
CB Richard Ellis say that the traditional cyclical performance of the property market across Europe has been compounded by unprecedented liquidity issues in 2008. Most markets are experiencing an upward movement in yields. Unlike all of the rest of Europe however, 100% of property investment activity in Ireland in recent years has been domestic, with overseas investors put off by the exorbitant 9% rate of stamp duty applying here. CB Richard Ellis say that this issue urgently needs to be addressed by Government in the forthcoming Budget if private investors and sovereign wealth funds that are active in other markets are to be encouraged to invest in Ireland.
On a positive note, CB Richard Ellis believes that the occupier sectors of the property market in Ireland remain relatively healthy and this bodes well for a return to growth in the medium term. They say that in the same way that the stock market will ultimately recover the property market will rebound. Without funding, CB Richard Ellis believes that a significant increase in transactional activity will be difficult but they say that unless values re-adjust the current stalemate will continue.