Dublin values could be cut by up to 50pc
Sharp declines in the values of prime Dublin shops and offices are forecast in the latest property market report from CB Richard Ellis. It estimates that the notional values for prime city centre Grafton Street shops may have dropped by as much as 50pc, while notional values for offices and other buildings may have dropped by between 25 and 30pc.
However, because of the lack of deals, CBRE can only offer valuations based on what it might take to attract buyers, many of whom are seeking the equivalent of distressed prices.
CBRE's director of research, Marie Hunt, attributes the lack of deals to fears of worsening economic prospects as well as the scarcity and increasing costs of borrowing. Consequently, CBRE believes "that prime yields for office and shopping centre properties are now in the order of 4.75pc (from 3.5pc previously) while retail warehouses and industrial properties are trending towards 5.75pc. Demand for properties in all sectors is extremely weak, with high street yields now in the order of approximately 3.75pc (from 2.5pc at Grafton Street's peak) and likely to trend weaker over the coming months."
Nevertheless CBRE is less pessimistic than others. Its investment director Sean O'Brien says that forced sales "are unlikely to manifest themselves in this cycle. Transactional value will improve once properties adjust to 'fair value' and liquidity improves."
In the office market CBRE expects that take up will increase from 80,000sqm in the first half of the year to 120,000sqm in the second half.
However, Ms Hunt points out that there are likely to be fewer companies taking up office space in the second half of the year, as a number of potential occupiers put future expansion and relocation decisions on hold.
Nevertheless, she expects some of the banks, such as Bank of Ireland, to finalise their agreement to take office space in Liam Carroll's North Docklands developments before the end of the year.
On the other hand, she points to some firms moving to Dublin's western suburbs and Zurich's move to Wexford as signs that firms are considering alternatives to the Dublin 2 and 4 prime office areas.
CBRE's James Mulhall also criticises predictions that the credit crunch will result in hundreds of job losses in financial services, and that this will impact on the office market, as overly pessimistic.
While acknowledging that retail sales volume has fallen, CBRE nevertheless points to the numbers of Irish and international retailers that have plans to expand their Irish store networks, including ADM Londis, Spar, Boots, Starbucks, and Tesco.
The credit crunch has taken its toll on the pubs market with only five pubs sold in Dublin this year compared to 12 in the first half of 2007. With less developer interest, prices are being pared back and a possibility of distressed sales are of concern. Reduced consumer spending is also expected to impact on hotels. One of the few hotels to sell recently was the South Court Hotel, Limerick, on which the Lynch family are reported to have closed a €15m sale and leaseback deal.
- donal buckley
