Ireland’s Commercial Real Estate Recovery

Analysts at property firm CBRE believe Ireland’s commercial property market is swinging into a period of recovery based on performance trends measured during 2012. Although capital value dropped …

Analysts at property firm CBRE believe Ireland’s commercial property market is swinging into a period of recovery based on performance trends measured during 2012. Although capital value dropped and land value plummeted as much as 90%, experts think the gouging has positioned the market for a comeback, particularly for prime properties. Stabilization of prime yields and improved transaction volume are two factors that suggest 2013 may be the best of a long string of bad years for the Emerald Isle. Overseas investors are expected to drive the recovery to a significant degree, although it’s not expected that the secondary market will benefit. For more on this continue reading the following article from Property Wire.

Last year marked a turning point for the Irish commercial property market following an unprecedented period of decline since 2007 and the outlook for 2013 is busy, according to the latest analysis from property firm CBRE.

In 2102 yields effectively doubled, rents halved, capital values declined by an average of more than 65% and land values declined by as much as 90%, it says in its latest report.

But according to Marie Hunt, executive director CBRE Ireland, the sector is moving into a recovery phase. She pointed out that the prospects for prime property are considerably better than secondary which will inevitably take longer to unwind.

The report shows that despite a challenging economic backdrop, leasing activity in all sectors of the occupier markets held up remarkably well in 2012. Buoyed by measures introduced in the 2012 Budget as well as improving economic indicators, investors started to focus their attention on opportunities in the Irish market and there was a notable year on year increase in the volume of transactions in the investment, hotels and development land sectors in particular.

‘In addition to asset sales, we also witnessed the sale of a number of performing and non-performing loan portfolios during 2012. The pace of rental value decline eased as the year progressed and prime rents in all sectors started to show clear signs of stabilisation,’ said Hunt.

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‘Equally, prime yields stabilised and showed signs of hardening towards year end. Banks became more focussed on the assets behind each loan with increased focus on asset management as a tool to minimise losses,’ she added.

She pointed out that the most notable trend witnessed in 2012 was the extent to which international investors focussed their attention on the Irish economy and sought real estate opportunities with the greatest proportion of transactions concluded during the last 12 months being international in nature.
‘Looking ahead it is predicted that the Irish commercial property sector will be largely dependent on economic activity. For Ireland, the market performance will be influenced not just by domestic economic activity but equally economic performance in the UK, the Eurozone and in the US,’ said Hunt.

‘In any event, we believe that the Irish commercial property market will be largely polarised in 2013, with the prime end of the market clearly entering a recovery phase, supported by continued appetite from overseas investors, many of whom have the ability to bring new forms and sources of funding with them, which will be a welcome boost for liquidity,’ she explained.

‘On the other hand however, some further slippage in rental and capital values cannot be ruled out for secondary and provincial properties for which demand is weaker and largely limited to domestic cash buyers. There is no visibility on the depth of cash that these buyers have at their disposal which is a concern,’ she added.

The firm expects that properties will continue to come to the market on a relatively controlled basis over the course of 2013 with the deleveraging process continuing but at a continued slow pace. 

Hunts said that there is some potential for some limited rental growth to emerge at the prime end of the office and retail sectors in 2013 in some specific locations. The one area where costs have not rebased is commercial rates and this is likely to be the focus of more attention than rental costs during 2013.
‘We expect to see continued activity in all sectors of the occupier markets. We also expect to see more corporate occupiers weighing up the merits of purchasing buildings as opposed to leasing them, particularly in cases where the price is lower than the replacement cost of the building,’ she said.

‘We expect to see an escalation in the number of refurbishment projects this year. However, we do not expect to see any speculative office development commencing in 2013 on the basis that rental and capital values are not yet at a level which would render development viable. We are getting closer to this position in prime locations in Dublin 2/4 but speculative
development is not on the horizon for secondary and provincial office locations at this point,’ she pointed out.

We could however see some international buyers emerging for strategic sites in Dublin that offer the potential for office and/or residential development in the medium term. We expect to see more hotels assets being brought to the market and a notable increase in the volume of pub properties being offered for sale over the course of 2013 with the buyers for these properties being predominantly local.

This article was republished with permission from Property Wire.


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