MIXED STORY FOR IRISH PROPERTY AT MID-YEAR POINT
Property consultants CB Richard Ellis today launched their mid-year property market update for 2009, which indicates that while the investment sector of the Irish property market is clearly showing signs of improvement, the occupier and development land sectors of the market continue to find conditions very challenging.
It is now exactly 12 months since CB Richard Ellis adjusted their prime yield series in reaction to a severe reduction in the availability of bank funding. This caused consternation at the time but the property consultants have since been proven correct because prime yields in the Irish investment market have been moved out by over 400 basis points in some sectors since 2008. With substantial value declines now widely accepted, there have been renewed signs of activity in the investment sector of the market in recent months according to CB Richard Ellis, with increasing interest from international buyers in particular. The property consultants report that approximately €41 million was invested in the Irish investment market in the last three months, bringing total investment for the first half of 2009 to €41.6 million. This compares to €392 million invested domestically in the first half of 2008.
According to the July report from CB Richard Ellis, overseas buyers now see the UK as being an attractive investment proposition in an international context, particularly considering the value adjustment and currency movements that have taken place in that market over the last 12 months. Demand for UK property is being led by German, US, South African and Middle Eastern buyers in recent months with particularly strong demand for lot sizes of less than £30 million. German funds are without question the most aggressive buyers for long income in London City, whilst private investors, particularly overseas buyers are leading the charge in London’s West End. All investors want prime assets with strong covenants let on long-leases in established locations. However, CB Richard Ellis say that a key challenge is that there is very little stock on the market in the UK that meets all of these criteria. Irish investors are not actively investing at present but are certainly watching developments in the UK investment market closely.
While CB Richard Ellis say that there are signs of improvement starting to emerge in the investment sector in Ireland and the UK, they say that conditions in the occupier markets, namely the office, retail, industrial sectors of the economy continue to find conditions challenging, with significant pressure on rents and capital values. While transactions continue to be negotiated in all sectors, tenants are in a strong bargaining position in the current climate and are seeking out very competitive terms and conditions. CB Richard Ellis say that the Government’s proposed ban on upward only rent reviews will do nothing to alleviate the difficulties these occupiers are facing in the current market as the proposed legislation is not retrospective and will only apply to new leases.
CB Richard Ellis say are encouraged by the fact that a number of large office requirements from international clients have started to emerge in recent weeks, which will hopefully translate into lettings in this sector in the second half of the year. In any event, they point out that take-up in the Dublin office sector in Q2 2009 has been considerably better than the first three months of the year. They say that prime headline office rents are continuing to come under pressure with prime headline rents in Dublin now approximatley €485 per square metre, having peaked at €673 per square metre in 2008. They say that rents have also fallen in the industrial and retail sectors of the market in recent months.
The property consultants say that until such time as excess supply in the housing and occupier markets is absorbed, funding for development land will not materialise in the Irish market. With at least 15,000 unoccupied housing units in the Dublin market; a high degree of housing oversupply prevailing outside of Dublin and vacancy rates in the key occupier markets in high double digits, it could take a number of years before any meaningful recovery emerges for development land, particularly outside of Dublin.
Regarding the hotel industry, CB Richard Ellis say that negotiations are continuing on a number of high-profile hotel sales at present. They say that Ireland West region’s tourist industry received a great early season boost in recent weeks with it’s hosting of the Volvo Ocean Race in Galway but in general hoteliers are finding trading very difficult at a time when they would normally expect to be building up their cash reserves at the peak of the tourist season. They say that there is much discussion about exorbitant VAT rates, the new tourist airport tax and minimum wage costs, which are very high relative to the rest of Europe, particularly considering the pressure on room rates that is being experienced around the country. They say there has been a notable reduction in occupancy rates and revenue per room in the Irish market in recent months.
Although a number of UK and US indices are beginning to indicate some stabilisation in house price trends, CB Richard Ellis say that considering the lag effect inherent in the Irish data, it will be some time before we can see real evidence of the improvement in activity in the new homes market that is now starting to emerge. CB Richard Ellis are critical of the Government’s announcement that measures are now being put in place to charge owners of holiday homes and investment properties an annual €200 tax saying that while they understand the rationale for broadening the national tax base, this measure would best have been left until later in the year until the Commission on Taxation announce their plans for an annual property tax.
Guy Hollis, Managing Director at CB Richard Ellis said, “While it will take some time before we can herald a recovery in the Irish commercial property market, we are definitely seeing renewed activity in some sectors of the market in recent months and are encouraged that transaction volumes will improve in the second half of 2009”.
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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 2008 revenue). The Company has approximately 30,000 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 three years in a row and a Fortune 100 fastest growing company two years in a row. Please visit our Web site at www.cbre.com.
In Ireland, CB Richard Ellis is the country’s largest commercial real estate services company, now employing over 110 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, 2009, for the fifth year running. Please visit our website at www.cbre.ie