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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM

Report says Irish commercial property market will be very challenging in 2009
By Finfacts Team
Jan 8, 2009 - 7:27:15 AM

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CBRE says that a number of new office schemes are due to come on stream in Dublin over the course of the next 12 months including 16,441m2 at The Chase building (pictured above) and 16,680m2 at No. 1 Central Park in Sandyford; 10,850m2 at The Point in Dublin Docklands and c. 22,181m2 respectively at Burlington Plaza and 4 & 5 Grand Canal Square in Dublin 4. It is encouraging that a large number of proposed office schemes are being put on hold, which in turn will prevent the same degree of oversupply that characterised previous downturns in the Irish market. The Dublin office sector has for many years been heavily reliant on lettings to financial companies. CBRE says considering what transpired in financial markets last year this trend will undoubtedly change in 2009. Another outcome of last year’s events is that landlords will be increasingly mindful of tenant covenant strength when negotiating lettings going forward. Photo: www.development.ie

Property consultants CB Richard Ellis today launched their annual Outlook report* - for all sectors of the Irish commercial property market in 2009.  The report is negative about prospects in many sectors of the Irish property market, stating that the commercial property market will find 2009 very challenging in the aftermath of last year’s severe and unprecedented downturn.  In fact, the property consultants say that with sentiment and economic conditions weak and bank funding severely restricted, it will likely be 2010 before conditions in the Irish property market improve to any significant degree.

*should be accessible via this link from today.

CBRE says the Irish investment market was one that was very severely impacted in 2008, with less than €500 million invested domestically compared to some €1.9 billion in 2007. The firm expects conditions in the Irish investment market to remain challenging in 2009. With many investors and developers under financial pressure, there may be an increase in distressed sales this year although CBRE acknowledge that it is impossible to say if this will result in prime investment properties being offered for sale. Nevertheless, they say that there are likely to be some excellent buying opportunities (both on and off-market) for those in a position to purchase.  However, according toMarie Hunt, Director of Research at CB Richard Ellis, “Investors remain cautious and will be unwilling to purchase properties until such time as they believe that values have bottomed out. In the interim, capital values will remain under pressure and will not be helped by the fact that there is little prospect of rental growth in any of the occupier markets in the short to medium term. In the absence of transactional evidence, it is difficult for many vendors to accept the degree to which commercial property values have deteriorated from their peak. However, vendors will have to be very realistic on pricing to secure sales in the current environment.  Assuming an improvement in liquidity, we expect to see somewhere between €500 million and €750 million invested in Ireland in 2009. Buyers in 2009 will be buying on the basis of passing rents and not reversionary prospects”. 

CB Richard Ellis believes the UK investment market was the first property market in Europe to see a significant fall off in values and is therefore likely to be the first to stabilise, albeit values are likely to overshoot before stabilising as in all other cycles.

According to the new report, the development land sector fared worst in the downturn that characterised the commercial property market in Ireland in 2008.  Stagnation in the housing market coupled with severe liquidity problems in the financial markets led to very significant declines in land values across the country. CB Richard Ellis says that there is little transactional evidence to quantify the extent of the fall in land values. However, they believe that on average, the value of prime development sites in Dublin fell by at least 40% during 2008, while much more dramatic declines were witnessed in secondary sites and provincial land banks.

Assuming there is finance available to support buyers, there will be transactions concluded during 2009 but at drastically reduced values from the market peak.  Considering the underlying economic situation and the fact that demand in the occupier markets continues to deteriorate, CBRE expect the appetite for development land to remain extremely weak in 2009.   They say that a lack of cash-flow is seriously affecting most developers in the current climate and that there is likely to be a notable increase in the number of distressed sales in this sector over the course of the next 12 months. This will undoubtedly present some excellent buying opportunities for potential purchasers who are able to secure funding.   The limited number of buyers will be very selective and are likely to focus their attention on prime sites. Those purchasing land will be doing so on the premise that there is likely to be a long lead-in time between purchasing and developing.  Vendors will need to be flexible on price, timing and payment structures in order to affect sales in this climate according to the new report.

The property consultants say that the occupier markets performed relatively well in the first half of 2008 but that economic conditions began to impact on performance in the latter half of the year and that conditions will be particularly challenging in 2009 with a lot of requirements for office, retail and industrial accommodation being put on hold in the current climate.  As a result, tenants will be in a strong bargaining position to negotiate favourable terms and conditions.  Against this backdrop, CB Richard Ellis believes that there is potential for rents in some schemes to come under pressure over the course of 2009.

Patrick Koucheravy, Property Economist at CB Richard Ellis, said, “As the financial crisis has bled into the real economy, its effects have had an impact on occupier markets in the past few months.  Business and consumer confidence is at an all-time low and so the appetite for expansion and re-location going into 2009 is minimal.  Greater competition for tenants in this climate will certainly put pressure on rental levels, as we’ve already seen in the office market.”

According to the new report, the volume of Dublin pub sales concluded during 2008 was down 50% compared to the previous year with only six properties sold and two properties leased during the year. This trend was exacerbated by the fact that the alternative development values that had been paid for pub properties during the height of the construction boom were no longer achievable. A number of licensed properties were offered for sale on the instructions of receivers and examiners in the latter half of 2008 and CB Richard Ellis expect to see an escalation of distressed sales in this sector of the market in 2009.  The hotel sector will also face big challenges over the course of the next 12 months.

Speaking at the launch of the Outlook 2009 report, Guy Hollis, Managing Director at CB Richard Ellis said, “The only positive is that unlike other previous downturns in the Irish commercial property market, the development community have been extremely prudent and have essentially curtailed a significant proportion of schemes that would otherwise have been developed and contributed to oversupply. As we look to the 12 months ahead, there are positives emerging, not least the continued reductions in interest rates which will improve confidence and stimulate some activity.  Property values haven now fallen to levels which will undoubtedly give rise to some excellent buying opportunities during 2009.  However, no-one is denying that the property market will, for the most part, remain very challenging over the course of the next 12 months and that it will likely be 2010 before we are through the worst of this unprecedented downturn”.

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