Signs of recovery evident in some sectors of the Irish commercial property market

Certain occupiers in the industrial market are willing to compromise on building quality and in some cases efficiency in order to cut costs according to CB Richard Ellis who say that almost all of the transactions being concluded in this sector of the market at present comprise short-term lettings. Industrial occupiers are purely focused on cutting costs and as a result, rental values remain under pressure in this sector with a clear gap emerging between rents for modern/new premises and older second-hand accommodation.

According to the report, activity in the Irish investment market continues to improve with domestic and overseas investors looking for prime investment opportunities. CB Richard Ellis says that approximately €100 million was transacted in the Irish investment market during the first six months of 2010, which is higher than the level of spend in the whole year in 2009. However, according to the property consultants, there is a dearth of prime properties being offered for sale. Although prime yields continue to fall in most European markets, prime yields in the Irish property market remain stable at current levels with the exception of prime high street yields, which CB Richard Ellis have recently adjusted downwards by 25 basis points to 6.25%. CB Richard Ellis say that few new investment properties are likely to be offered for sale until the autumn and it remains to be seen if NAMA will offload any investment product later in the year once they have reviewed the business plans of the Top 10 borrowers.

According to the new report, the last few weeks have marked a clear watershed for the UK investment market. While the attraction of the asset class remains compelling for potential investors, returns in April and May were more sedate than experienced since the UK investment market first began to recover 12 months ago. A lot of investment properties have come to the market in recent months, particuarly in Central London, and as returns stabilise, there is a definite sense according to CB Richard Ellis that the strong demand that has been driving the rally in the UK market over the last 10 months is now beginning to ease somewhat. Prime yields in all sectors in the UK are now stable at current levels. However, CB Richard Ellis says that the UK economy remains fragile, rental growth remains largely confined to the London market and it remains to be seen what impact austerity measures to be implemented by the new coalition Government will ultimately have for the property sector. Against this backdrop, Irish investors are taking advantage of the strong pricing in the UK market and in an effort to recover some or all of their equity have been net sellers of UK real estate in recent months.

Referring to many of the recent fire sales that have been taking place in the residential property market, the property consultants say that the establishment of pricing benchmarks will assist in the accurate valuation of land. They say that there is some appetite from domestic and overseas companies to do joint ventures on land but most lending institutions and developers are not yet in a position to pursue this option. CB Richard Ellis does not expect to see many new sites coming to the market until autumn. They say that even though NAMA are now in the process of reviewing the business plans of the Top 10 developers, they do not expect to see the state entity making decisions on land sales until later in the year at the earliest. The property consultants don’t expect to see many new hotels being offered for sale for the foreseeable future either with most operators, financial institutions and advisers opting to put management contracts in place as opposed to selling in the short to medium term.