UK commercial property market.

Just over €71m was invested in the Irish investment property market in the first 9 months of 2009. Meanwhile, the UK commercial property market emerged from recession in Q3 2009.

In its bi-monthly report on the Irish commercial property market, published today, CB Richard Ellis says the most notable transaction concluded recently was the sale to DEKA (one of Germany’s largest open-ended funds) of a prime retail investment property let to Tommy Hilfiger on Grafton Street in Dublin city centre for a price in the region of €25 million.

A small number of investment transactions are expected to complete before year-end.

CBRE reports Dublin city centre office rents have now fallen by 40% from their peak levels.

The office vacancy rate is almost 22% and only 57 separate office lettings signed in Dublin in the third quarter.

"Prime headline-quoting rents in Dublin city centre are now down to about €403 per square metre although it now appears that the pace of rental decline, for prime properties at least, is beginning to ease," the report says.

CBRE report

UK market

UK commercial property capital values rose over the third quarter of this year by 1.5%, a 5.6% improvement on the previous three month period, according to the IPD UK Quarterly Property Index Q3 2009 published last Friday.

The total return to investors, including income as well as capital growth, was 3.4% over the quarter, up from -2.2% the previous quarter, bringing the 12-month return to -18.2%. In nominal terms, these figures represent the first increase in capital values and positive returns for UK commercial property investment since the second quarter of 2007.

Third quarter and annual capital growth figures for the three principal sectors were 2.1% and -24.1% for Retail; 0.7% and -24.8% for Offices and; 1.5% and -22.1% for Industrials.

The driver of capital growth was a fall in market valuation multiples, reflecting increased demand by investors for real estate in the UK. The running yield on commercial real estate had peaked at 7.7% in June, a figure three percentage points higher than June 2007.

The impact of rental movements continued to be negative with rental value falls of -1.6% over the quarter, a sharp improvement on the falls registered in the first half of the year.

Malcolm Frodsham, Research Director at IPD said: “After eight quarters of negative performance commercial real estate has moved back into the black. The rapid correction in market values in the UK has boosted market yields to over 7.5% and with sterling so weak, the UK market is proving irresistible to overseas investors. Of real encouragement last quarter was that whilst rents are still falling, these falls have finally moderated across huge swathes of the UK real estate market.”

UK Quarterly Index report