News

Irish commercial property values still falling

News

Bridget O’Connell

27 October 2010

Institutional, Investment/finance

Irish commercial property values continue to fall, dropping a further 2.6% over the third quarter according to the SCS/ IPD Ireland Quarterly Property Index.

This represents a slight improvement on the previous quarter when capital values depreciated by 3.5%, but has still pushed the peak-to-trough decline to 59% over three years.

The improving performance is the result of the softening rental declines, from -7.5% in Q2 to -5.2% in Q3, and secondly due to a modest, but favourable, correction in yields for the first time in three years.

Yield impact, which measures the impact of yield movements on capital values, was 1.1% over the third quarter.

Over the full three years since capital values starting falling, equivalent yields increased from 4% in Q4 2007 to 8.3% at Q4 2009 before a modest 20 basis points compression to 8.1% by the end of Q3 2010.

Rents, which started to decline from Q1 2009, have fallen by -34.2% over seven consecutive quarters to the end of Q3 2010.

Over the year-to-date, commercial rents have fallen by 15.2%.

Sasha Thomas, service manager for Ireland at IPD, said: “After the rental deterioration over Q2, the Irish market has been braced for further capital write-downs. The picture remains mixed: while rental pressure has eased again and yields have stabilised, uncertainty in the market still lingers given the state of the broader economy.”

Peter Stapleton, president of the Society of Chartered Surveyors, added: “Despite the overall falls this quarter, yields of prime, well-let city centre properties are stabilising. We expect that the market will produce more supply of investment property during 2011 which will satisfy some latent demand from cash purchasers that have been holding back for some time.

“There are also an increasing number of office enquiries in the market at present that will take advantage of the competitive leasing opportunities that have arisen due to falling rents.”

For the second quarter in a row, industrials suffered the steepest sector write-downs, at -4.0%, with a sharp rental decline, at -9.2%, offsetting the 20 basis points yield compression. Industrial equivalent yields ended Q3 at 9.1%.

Capital depreciation in retail and offices both eased in Q3, recording -2.6% and -2.3%, respectively. Rents fell by -3.9% and -5.4% over the quarter, while equivalent yields for the two sectors compressed by 10 basis points to 7.9% and 8.1%, respectively.

Within the major retail and office segments in Q3, Henry and Mary Street saw a capital write-down of -2.8%, while Grafton Street’s decline was shallower, at -1.8%. Central Dublin office capital depreciation was half as steep in Q3 than the previous quarter, at -2.0%.

Thomas added: “Over the three-year cycle in Ireland, the steepest value write-downs have come in the major retail districts with Henry/Mary Street declining by –69.1% while Grafton Street has shed -67.5% off peak value.

“The deep -13.4% rental falls in Henry/Mary Street over the second quarter have given way to a much more muted -1.5% decline – shallower than the -5.2% all property average rental fall.”

bridget.o’connell@estatesgazette.com

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Irish commercial property values continue to fall, dropping a further 2.6% over the third quarter according to the SCS/ IPD Ireland Quarterly Property Index. This represents a slight improvement on the previous quarter when capital values depreciated by 3.5%, but has still pushed the peak-to-trough decline to 59% over three years. The improving performance is the result of the softening rental declines, from -7.5% in Q2 to -5.2% in Q3, and secondly due to a modest, but favourable, correction in yields for the first time in three years. Yield impact, which measures the impact of yield movements on capital values, was 1.1% over the third quarter. Over the full three years since capital values starting falling, equivalent yields increased from 4% in Q4 2007 to 8.3% at Q4 2009 before a modest 20 basis points compression to 8.1% by the end of Q3 2010. Rents, which started to decline from Q1 2009, have fallen by -34.2% over seven consecutive quarters to the end of Q3 2010. Over the year-to-date, commercial rents have fallen by 15.2%. Sasha Thomas, service manager for Ireland at IPD, said: “After the rental deterioration over Q2, the Irish market has been braced for further capital write-downs. The picture remains mixed: while rental pressure has eased again and yields have stabilised, uncertainty in the market still lingers given the state of the broader economy.” Peter Stapleton, president of the Society of Chartered Surveyors, added: “Despite the overall falls this quarter, yields of prime, well-let city centre properties are stabilising. We expect that the market will produce more supply of investment property during 2011 which will satisfy some latent demand from cash purchasers that have been holding back for some time. “There are also an increasing number of office enquiries in the market at present that will take advantage of the competitive leasing opportunities that have arisen due to falling rents.” For the second quarter in a row, industrials suffered the steepest sector write-downs, at -4.0%, with a sharp rental decline, at -9.2%, offsetting the 20 basis points yield compression. Industrial equivalent yields ended Q3 at 9.1%. Capital depreciation in retail and offices both eased in Q3, recording -2.6% and -2.3%, respectively. Rents fell by -3.9% and -5.4% over the quarter, while equivalent yields for the two sectors compressed by 10 basis points to 7.9% and 8.1%, respectively. Within the major retail and office segments in Q3, Henry and Mary Street saw a capital write-down of -2.8%, while Grafton Street’s decline was shallower, at -1.8%. Central Dublin office capital depreciation was half as steep in Q3 than the previous quarter, at -2.0%. Thomas added: “Over the three-year cycle in Ireland, the steepest value write-downs have come in the major retail districts with Henry/Mary Street declining by -69.1% while Grafton Street has shed -67.5% off peak value. “The deep -13.4% rental falls in Henry/Mary Street over the second quarter have given way to a much more muted -1.5% decline – shallower than the -5.2% all property average rental fall.” bridget.o’connell@estatesgazette.com To access all EGi and EuroProperty news stories and commercial property data sign up for a free trial today, or visit the subscription options page to find out more.