News

Yields on hold

News

Stacey Meadwell

22 September 2007

Industrial, Investment/finance, Offices, Retail

Northern Ireland

Yields are forecast to remain steady alongside some rental growth, despite growing economic turmoil.

Investment

No prime yield shift is forecast by CB Richard Ellis for next year, despite a cooling of the market. Marie Hunt, director of research at CBRE, says: “Investors are aware that commercial property market returns in 2007 and 2008 are likely to be considerably less than those achieved in recent years, now that yield convergence has stabilised in most markets.

“However, there is no real evidence of Irish investors curtailing property investment on the back of interest rate movement or the prospect of lower returns.”

What Hunt does predict is more caution over deals. While prime stock will hold steady, she says the gap between prime and secondary yields will become evident once again.

“While much will depend on what pans out in the equity markets and the wider global economy over the coming months, the ironic thing is that commercial property markets could actually benefit as investors move away from the volatile equity market towards the more stable property market. This is despite the fact that returns will be considerably less than they have been used to,” says Hunt.

Rents

CBRE says that modest office rental growth is anticipated, owing to a lack of future supply. “Developers and their lending institutions have adopted a very prudent development response over the past two years, which will ultimately insulate this market,” says Hunt.

In the retail sector, interest-rate increases and gloomier economic expectations are likely to take their toll on spending patterns.

However, Hunt believes this will not have any negative effect on retail property. “A number of new shopping centres are due to open in the autumn, but the general sense is that the quantum of supply coming on stream is much more controlled than during the past five years when we struggled to combat the undersupply scenario that prevailed previously.”

Take-up

Dublin experienced the best half-year in terms of office take-up. CBRE predicts that strong take-up will continue through the autumn with what Hunt describes as “a large number of significant lettings due to be signed”. Should these deals land, then 2007 will continue to break records.

Longer-term economic cooling will be watched closely to see if it affects leasing deals.

CBRE is predicting a 20% drop in overall take-up next year, but this has to be regarded in light of this year’s exceptional and potentiallyrecord-breaking performance.

Hunt says: “The key determinant of continued activity in this sector is strong economic performance and, in particular, continued growth in employment. Despite the fact that the prospects for both indicators are somewhat less attractive than they were only 12 months ago, the expected decline in economic activity will not be sufficient to affect office letting activity to a significant degree in the Irish capital.”

Yields are forecast to remain steady alongside some rental growth, despite growing economic turmoil. Investment No prime yield shift is forecast by CB Richard Ellis for next year, despite a cooling of the market. Marie Hunt, director of research at CBRE, says: “Investors are aware that commercial property market returns in 2007 and 2008 are likely to be considerably less than those achieved in recent years, now that yield convergence has stabilised in most markets. “However, there is no real evidence of Irish investors curtailing property investment on the back of interest rate movement or the prospect of lower returns.” What Hunt does predict is more caution over deals. While prime stock will hold steady, she says the gap between prime and secondary yields will become evident once again. “While much will depend on what pans out in the equity markets and the wider global economy over the coming months, the ironic thing is that commercial property markets could actually benefit as investors move away from the volatile equity market towards the more stable property market. This is despite the fact that returns will be considerably less than they have been used to,” says Hunt. Rents CBRE says that modest office rental growth is anticipated, owing to a lack of future supply. “Developers and their lending institutions have adopted a very prudent development response over the past two years, which will ultimately insulate this market,” says Hunt. In the retail sector, interest-rate increases and gloomier economic expectations are likely to take their toll on spending patterns. However, Hunt believes this will not have any negative effect on retail property. “A number of new shopping centres are due to open in the autumn, but the general sense is that the quantum of supply coming on stream is much more controlled than during the past five years when we struggled to combat the undersupply scenario that prevailed previously.” Take-up Dublin experienced the best half-year in terms of office take-up. CBRE predicts that strong take-up will continue through the autumn with what Hunt describes as “a large number of significant lettings due to be signed”. Should these deals land, then 2007 will continue to break records. Longer-term economic cooling will be watched closely to see if it affects leasing deals. CBRE is predicting a 20% drop in overall take-up next year, but this has to be regarded in light of this year’s exceptional and potentiallyrecord-breaking performance. Hunt says: “The key determinant of continued activity in this sector is strong economic performance and, in particular, continued growth in employment. Despite the fact that the prospects for both indicators are somewhat less attractive than they were only 12 months ago, the expected decline in economic activity will not be sufficient to affect office letting activity to a significant degree in the Irish capital.”