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News : Property Last Updated: Oct 19, 2011 - 7:00 AM

Irish commercial property capital value has tumbled 64.2% from September 2007 bubble peak
By Finfacts Team
Oct 19, 2011 - 5:43 AM

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Irish commercial property capital value has tumbled 64.2% from the September 2007 bubble peak, according to a report published on Tuesday.

The Jones Lang LaSalle Irish Property Index (pdf) results for Q3 2011 were mixed. The overall return for the Index is still falling (-1.9%) and disappointingly, year-on-year overall returns were 5.0% lower, compared to 2.0% year-on-year results for the previous quarter.  On a more positive note, all indices are falling at a lower pace than the previous quarter with overall returns at -1.9% compared to -3.4% in Q2.

According to Hannah Dwyer, who heads up the Research department at Jones Lang LaSalle, “the capital value of commercial property in Ireland fell by 4.2% in Q3 2011 and by 11.5% in the first three quarters of 2011 overall.” She also added that “since the peak in September 2007, capital values overall have fallen by 64.2%, a significant drop over a period of just 4 years”.

The industrial sector continued to experience the sharpest decline in capital performance, falling by 4.6% in Q3 2011, and -18.7% year-on-year. Capital values for retail fell by 4.3% in Q3 2011, and 13.3% over the last 12 months. Office values also dropped, with a 4.1% decrease in Q3 2011 and 13.0% in the year to September 2011. “Despite the industrial sector continuing to fall at greater levels than other sectors, this quarter shows a narrowing across sectors, with all three sectors falling at a rate of between 4.1% and 4.6%, a range of only 0.5%, compared to a range of 2.5% in Q2”, added Hannah Dwyer.

Rental values across the entire Index portfolio fell by 2.3% in Q3 2011, which is significantly lower than decreases in Q2 2011 (-4.6%). The decrease in rents is reflective of the continuing pressure on occupational markets and attractive lease incentives being offered to tenants. Rental values in the retail sector were hardest hit, falling by 3.0% in Q3 2011, although year-on-year results show office rental values have decreased the most, by 15.2% in the previous 12 months to September 2011. Hannah Dwyer added that “Results for this quarter show that for each of the sectors, quarterly decreases in rental values slowed significantly from the previous quarter’s results, but year-on-year results highlight the significant hit commercial rents have had over the last 12 months”.

Positively, net income increased by 1.1%, the first increase since Q2 2010. Overall income showed signs of positivity last quarter, with slower decreases between Q1 (-4.8%) and Q2 2011 (-2.5%), and with positive income growth achieved for this quarter, positive messages are continuing to appear. Although there is still a yearly decrease of 7.9%, this is significantly lower than the previous two quarter’s year-on-year results (10.2% in Q1 2011 and 12.9% in Q2).

Overall income has also performed relatively well this quarter. Hannah Dwyer added that “the overall income yield in the portfolio has continued the upward trend from the previous 2 quarters, and now stands at 9.1%.  This strong rate of income return is a continued sign of stabilisation, and is a significant positive for the Irish commercial property market going forward”.

Jones Lang LaSalle said that it must be noted that capital values at Q3 2011 do not allow for the proposed legislation on the abolition of upwards only rent reviews in existing leases, which the market is still waiting for clarity on. “The Irish property investment market has virtually ceased activity as investors are still awaiting clarity on the government’s proposals, which, if introduced has the potential to significantly negatively impact market performance for properties on older leases” added Dwyer.

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