|
Last Updated:
Apr 24, 2009 - 5:31:05 PM |
Survey says Irish commercial property market to recover by early 2010 but reality is likely to be very different
By Finfacts Team
Oct 21, 2008 - 1:29:51 PM
|
Email this article
Printer friendly page
|
 |
| Burlington Plaza, Dublin 4. |
An independent survey of commercial property experts, conducted in July, found that while overall current sentiment has fallen substantially since the end of last year, the market was expected to recover towards the end of 2009 or the start of 2010. [NB: This survey was conducted before the financial turmoil of recent weeks.]
This is the seventh Survey of Business Sentiment in the Commercial Property Market carried out in July of this year, commissioned by Bank of Scotland (Ireland) and carried out by the Society of Chartered Surveyors (SCS) and the Dublin Institute of Technology, which surveys Chartered Surveyors in the commercial property sector in Ireland.
US investment bank Morgan Stanley says that that the recovery of the Group of Seven industrialised countries will be a slow process. There will not be a return to the days of easy credit and as Ireland is overwhelmingly dependent on US foreign direct investment, there will not be spurt in activity as the US housing market bottoms.
The contraction of the global financial sector will hit business in the IFSC and even accepting the Department of Finance's massaged figures in last week's Budget, it would take until 2011 to get borrowings in line with the Euro Stability and Growth Pact target deficit of 3% of GDP.
Besides, Goodbody Stockbrokers last Friday forecast a plunge in GDP of 4% in 2009 and they made it clear that there can be little reason for optimism in respect of 2010.
John Beggs, Chief Economist of AIB said today: "In my view, there will be a significant shortfall in projected tax receipts in 2009 and thus a higher budget deficit outcome for the year, making it difficult to achieve the forecast fall in the budget deficit to 2.9% by 2011. Furthermore, the Department’s growth forecast for 2010, as well as 2009, seems far too optimistic. On top of this, the Department estimates that fiscal adjustment measures totaling €3.3 billion in 2010/2011 (probably either further tax increases or spending cuts) will be required to meet its budget deficit targets. Overall then, the budget deficit targets are highly unlikely to be achieved. Thus, a very tough budget will be required again in 2010 if the public finances are to be put on a stable footing over the medium term.
It could take a five year period for the public finances to achieve the 3% budget deficit target. The national debt is still low so the required fiscal adjustment can be made over a number of years. The key thing is that, when the economy does start to turn upwards, the budget deficit is brought down accordingly and at a significant rate and mainly through containing growth in public spending. If it takes more than three years to bring the deficit down below 3% of GDP, so be it. The government, though, should not stop there. The aim should be to eliminate the budget deficit over the medium term to allow for the operation of automatic stabilisers when the next downturn hits the Irish economy."
Market Recovery
The survey found that close to half of the respondents (46%) believe that the market will recover in 2009, but probably towards the latter end of the year. Just over 40% expect that the recovery will not take place until 2010, more likely in the first half of the year. About 12% believe that the downturn will be a little more prolonged and it will be 2011 before a recovery takes place. No respondents saw the current situation lasting beyond 2011.
The survey also finds that the factors that are expected to trigger the recovery in the market are general confidence in the economy and access to funding. Other significant issues identified were the need for lower interest rates, improvement in the global economic climate, reduction in inflation, an increase in employment levels/reduction in unemployment and lower oil prices.
Sentiment Index
The overall index of sentiment has fallen from 56.5 in November 2007 to 26.6 in July 2008. Indeed sentiment has fallen by a significant amount in all three sectors (office, retail and industrial). This compares with the starting position for the index of 100 in May 2005 and a figure of 99.9 in November 2006. In the space of 20 months sentiment, as measured by the index, has fallen by over 73 index points.
Commenting on the findings, Declan O’Hanlon, Head of Property Banking at Bank of Scotland (Ireland), said: “It is unsurprising that sentiment in the market place has fallen for a second period as the economic and financial turmoil continues. This survey was carried out before the momentous events of recent weeks so I would expect it to take longer for the market to recover, probably at some stage in 2010. Also, we would hope the changes in commercial property stamp duty announced in the Budget last week will encourage activity and optimism.”
Also commenting, Sean McCormack, President of the Society of Chartered Surveyors, said: “The wave of negative sentiment apparent from the survey results and its impact on falling commercial property values is now a market reality. Notwithstanding the financial sector crisis of recent weeks occurring after the survey results were taken, the Irish economy and the property sector will have the opportunity to recover and build on strong growth already achieved. We welcome the Budget announcement to reduce stamp duty on non-residential property from 9% to 6%. We anticipate that the measure will assist in the reactivation of the commercial property market.”
Capital Values
Forecasts for change in capital values in all three sectors are down on the November 2007 survey, with between 87% and 91% of respondents expecting values to fall. In addition, a significant proportion of responses suggest that the decline in values will be in excess of 10%.
Rents
Expectations for rental change are generally somewhat less subdued than for capital values, but the dominant forecast across all three sectors is that rents will fall. Rent-free periods, break clauses and shorter leases emerge as the key lease inducements across the market with some small variation in emphasis in the three sectors.
Rental income is regarded as the main rationale for investment, with three-quarters of respondents regarding it as more important than capital gain in the eyes of investors. This is a reversal of the view held last November.
Yields
There is a general consensus that yields will increase across the three sectors. The yield forecasts generally reflect the greater negative sentiment in relation to capital values relative to rental values.
Activity
Sentiment in relation to activity levels has fallen across the market since November 2007. With the single exception of enquiries in the office sector, no respondent in any of the sectors forecast an increase in either transactions or enquiries over the next 12 months. Generally between 67% and 90% of respondents forecast a fall in transactions across the three sectors and between 50% and 73% forecast a fall in enquiries.
The expectation in relation to development either starting-up or at the planning stage is much more pessimistic than in November 2007 right across the market. The percentage of respondents forecasting a decrease in development starting-up ranges from 90% (industrial sector) to 100% (office sector). For development at the planning stage, the range is 77% to 90%.
Related Articles
© Copyright 2009 by Finfacts.com
Top of Page
|
