Prices drop in business sector for first time in five years
Thursday May 01 2008
Irish commercial property prices fell for the first time in five years during the past first quarter in what has been described as an "unprecedented reversal" of the once buoyant market.
A report published yesterday by London-based Investment Property Databank (IPD) said that the total return on its SCS/IPD index was -2.3pc during the quarter. It is the worst return in the history of the index, which was initiated in 1995.
The survey, which is conducted in conjunction with Society of Chartered Surveyors in Ireland and based on a €5.7bn sample of 330 properties, could also raise fresh fears about the exposure of Irish banks to the commercial property markets.
Earlier this year UBS cautioned that commercial property losses have historically had the biggest impact on Irish banks' earnings, and noted that periods of falling capital values have in the past been linked with spikes in impairment charges.
Capital values
IPD research manager Angela Sheahan, said that capital values of commercial property in Ireland fell 3.3pc in the first three months of the year -- the first quarterly drop in five years.
She described the fall as an "unprecedented reversal" that had dragged the 12-month total return to 4.9pc -- the lowest annualised return since 2003.
IPD added that the retail sector experienced the sharpest reversal in the quarter, with returns falling to -2.8pc, compared with 1.6pc growth in the previous quarter.
Industrial properties were the only sector with a positive total return, earning investors 0.4pc in the quarter. Total return from the office sector was -2.4pc.
"The outward movement in yields in quarter one reflects a pricing correction which needed to happen because property yields had been pushed so low over the previous five years," said Ms Sheahan.
"The situation is aggravated by the lack of available debt and uncertainty in the global financial markets."
Although rental value growth remained positive at 0.7pc in the quarter, it dropped from 1.5pc in the preceding quarter and is the poorest result for the past 12 months.
Angus Potterton, managing director of Savills HOK, said he believed the central Dublin office market would "hold up fairly well" in the current environment, as most developments there were being built to order, and not speculatively.
"The suburbs will suffer and there won't be any growth in rents there," he said.
Some experts have suggested that the office market in the wider Dublin area could see a rise in occupancy rates in the future as developments currently under construction are completed. That could be compounded by tenants vacating one building to move to new premises, leaving existing buildings to seek new tenants.
One leading economist said yesterday that the fall in values was not wholly unexpected.
"There's a repricing happening that is the result of a cocktail of influences," he said.
- John Mulligan
