John Moran forecasts further falls in commercial property prices in the short-term but believes that the market is nearing its trough. But the incoming managing director of one of Ireland's top four commercial property consultants Jones Lang LaSalle also sees a number of silver linings in the clouds overhanging the property market.

"There are people in difficulties but we have not had anyone come to our office saying 'Help I'm going bust,'" he laughs.

He estimates the value of property purchases in Ireland fell from €1.6bn last year to €300m in the first nine months of this year. Meanwhile Irish investors overseas purchases fell from about €9.9bn last year to €2.1bn in the first nine months of this year. Nevertheless he expects activity will improve next year.

"There are people (investors) in the dressing room limbering up. While it will be difficult for the remainder of the year and into January we may see some transactions again in February or March."

Activity

However, just because activity improves does not mean that he expects prices to rise. Far from it. He believes that commercial property values have already fallen by an average of 25pc and could drop a further 10pc by the end of this year and further adjustments will take place.

Development land values have fallen by between 60 and 70pc and the sharpest falls have been seen in secondary provincial locations.

"Occupational markets are going through a difficult period and the average Dublin vacancy rate has risen to 15pc and is trending upwards. Corporates are sub-letting office space and this is dangerous for rents as some firms welcome any extra income," he adds.

With no investor interest in offices, he says that sentiment is driving yields outwards, another way of saying that prices are coming down. JLL's index saw the yields for Irish offices extend to 5.2pc in the first nine months of this year but Moran believes that they will not level off until they exceed 6pc. Industrial yields, which is the quietest sector of the market could rise to 7-8pc from their current 6.2pc.

Retail traditionally attracts most investor interest and had seen yields fall close to 2pc at the market peak. While the JLL index has seen yields extend to 4.4pc by September, Moran believes "retail could over correct to 6pc."

That effectively means that prime retail values could more than halve from their peaks. "We are almost there at those levels," he adds.

But Moran does not see this downward slide in prices as a major cause for concern. "Those types of yields are appropriate for a mature Western European market whereas the previous yields of 3-4pc were not. The long-term average Irish property yield was 5-6pc for offices and around 5pc for retail."

However, even at these lower levels he understands why investors are understandably reluctant to buy as they say: "I don't want to be the fool who goes in and buys when it can be bought for less at some stage in the future."

The credit crunch has also taken its toll on investment and the changed attitudes of banks has been a key factor. He finds that although banks are still lending, they are imposing very restrictive terms.

"But then again this is a return to normality. Traditionally banks are risk averse, they examine investments to ensure that the interest repayments will be covered by income, that there will be some pay down of the loan, lower loan to value ratios (LTVs) and they seek higher margins. Now the LTVs have gone from an average of 75-80pc to less than 65pc. On a €15m deal the investor would need about €6m in equity when stamp duty and other costs are taken into account and not many people have that level of equity."

Furthermore the cost of borrowing has gone from 5pc to 6.5pc. and as there has always been a co-relation between property yields and borrowing costs he says it's not surprising that yields should exceed 6pc.

This reflects what he believes will be a return to the longer-term and more sustainable attitude to property as an investment. "During the boom years people looked at property and said get in quick and make a killing. It had become a victim of its own success. Now it's a victim of its own excess."

Instead of being solely focused on the opportunities to make a profit from trading property he advises investors to return to the more traditional attitude when assessing a property investment and look at its ability to generate income.

"Historically property out performed bonds. Currently Irish Government bonds yield only 3.5pc" which is not very attractive compared with the average long-term yields of 5-6pc achieved by offices and retail properties.

"But look at corporate bonds. Some of those such as Siemens are yielding around 7pc. But if the company goes belly-up the investor is left with nothing. With a property the risk lies with the tenant. If the tenant moves out you will always have the property and it's nearly always possible to get another tenant. I've never known a property that couldn't be let."

Jones Lang was a significant beneficiary of the Tiger years and was involved in about €1.6bn of the overseas investment properties acquired by Irish investors last year.

Nevertheless Jones Lang, under the leadership of the current managing director John Mulcahy, was relatively restrained in its response to the opportunities presented by the boom. Moran believes that the firm is now benefiting from such restraint.

"We didn't over expand in the boom times and concentrated on organic growth. It probably cost us (in commission) but we had seen the pitfalls before. While we have cut costs we haven't made anyone redundant," John Moran explains.

JLL's staff numbers are currently around 70, which is about six less than the peak, but this reduction came from natural wastage. A 100pc subsidiary of the international property firm of the same name, JLL's Irish operations reported a 19.5pc rise in pre-tax profits to €4.9m in 2007 on the back of operating revenues up 9pc to €20.4m.

Staff wages, salaries etc rose by 18pc to €10.66m. as staff numbers rose from 68 to 74 last December.

"We are not just a property brokerage dependent on deals. We generate strong annual income from our advisory service and valuation work and this ensures that we can continue to pay salaries."

As JLL also negotiates for buyers, when it advises a client that an asking price may be too high and to hold off, it may have to forego commission. But it benefits in the longer term. "We are not out for the quick buck. We recognise the importance of intellectual capital and we need good quality people to perform so cutting people can damage the capabilities of a firm to deliver for clients," he adds.

"We are seeing this in the feedback. For instance clients are finding that in other property firms they may have dealt with three or four different staff over the course of six months on a project and they tell us how good it is to deal consistently with the same team."

When asked how he expects to perform in his new role Moran laughs and says that some people have compared his timing to that of Brian Cowen, but he hopes that the expectations may not be as high as those set for the Taoiseach.

- Donal Buckley Commercial Property Editor