Prices in prime shopping centres still worst hit
The Covid-linked plunge in commercial property values has moderated but prices in prime shopping districts are more than a third below pre-pandemic levels.
Key segments of Ireland’s commercial property market are showing signs of stabilising, according to MSCI’s highly regarded IPD/SCSI Ireland Quarterly Property Index for the quarter ended September 30, 2021.
The industry benchmark showed that of almost €8.5bn of quarterly valued investment property, the capital values declined by only -0.1pc in the three months.
This is the smallest such value decline in over two years, according to Colm Lauder, Real Estate Analyst with Goodbody Stockbrokers.
Retail values continued their decline but at a slower rate of only 0.9pc; the best such performance in two years.
Mr Lauder says the Irish retail trend is following the UK, in that the improvement was driven by a return to improved investor sentiment for retail warehouses and parks.
However values on Dublin’s Grafton Street, Ireland’s top shopping street, fell 1.4pc bringing declines year-to-date to 9pc.
Dublin’s Henry Street values also fell 1.4pc in the quarter, bring year-to-date declines to 12pc.
Since the first Covid case was recorded in Ireland, shopping centre values have declined by 23pc, Grafton Street by 33pc, and Henry Street by 39pc,
“The most surprisingly point from MSCI’s valuation data release was the notable moderation in Irish shopping centre values, which declined by only 0.5pc in the third quarter, out performing both of Dublin’s main high streets. This may be sample specific given the continued lack of transactional evidence,” Mr Lauder said.
Central Dublin’s office market saw property values fall by 0.3pc bringing their 12-month decline to 1.7pc.
However office rents fell 1.3pc for the quarter representing the sharpest such decline in over eight years.
Mr Lauder says this reflects evidence from recent rent review negotiations and he expects office rents to continue to slip in the near term.
Nevertheless, some existing office tenants could see rents increase by 11pc.
Max Reilly, chair of the SCSI’s commercial agency group, said: “The normalisation of the market is occurring with an increasing return to offices by occupiers and that in turn should also improve the retail, food and beverage sectors in the cities…
" I think Q4 will show a far more positive trend and certainly investment volumes and trades are pointing in that direction.”
Mr Lauder also believes investor sentiment has improved as the ‘return to the office’ trend gathered momentum in September. “This has moderated the rate of decline in office values and generated some modest initial yield compression,” he said .
Industrial properties performed best with average capital growth of 4.4pc over the last three months and annualised growth of 14.3pc.