Some markets improving – some not
The first six months of the year has seen improvements in some sectors of the market, but not in others and Dublin is attracting most of the activity. This recession is reinforcing one of the fundamentals of the property market, which is that the deeper the recession, the greater the gap that will develop between prime and secondary property.
Here's my summary of the markets with a prediction for the latter half of the year:
The investment sector has been the star performer this year so far. With values down 50pc-60pc from the peak, over €600m worth of properties have changed hands already and there is strong competitive bidding for prime and many secondary investment properties.
At least half a dozen overseas property funds are actively bidding on prime stock. Offices are the main target but yields will fall across all sectors as the year progresses.
The Dublin office market is seeing demand well up on last year with almost 70,000sqm transacted. With no construction, vacancy levels for prime space in the city centre are down to 5pc – not far above full occupancy. Prime rents are €323 p.s.m. (€30 p.s.f.) but some deals have just been agreed at €376 p.s.m. (€35 p.s.f.) I predict that we'll see rents of €430 p.s.m. (€40 p.s.f.) by early next year. Docklands will continue to strengthen as a location.
The retail market continues to struggle with high vacancy levels and tenant failures. There are signs of stabilisation but consumer spending remains very weak.
I don't see much prospect of rental growth this year with the Local Property Tax biting and another "austerity" budget looming.
The better retail warehousing schemes nationwide are doing well but secondary developments, particularly in the provinces, have been hit hard.
The market for hotels has also been surprisingly strong – again boosted by an influx of overseas buyers. A dozen hotels were sold in Ireland in the first six months of the year and the trophy deal was Ashford Castle which made €20m. Strong local demand persists at lot sizes up to €6/€7m, with foreign money dominating over that level.
The next major deal will be Dublin's Trinity Capital Hotel where agents CBRE has selected a preferred bidder. Under bidders are reported to have included Ms Elena Baturina, the purchaser of the Morrison Hotel as well as London and Regional, the owners of The Four Seasons Hotel in Ballsbridge. More hotels are expected to come on the market in the autumn.
The market for residential development land in Dublin has improved strongly, encouraged by rising house prices in the best suburbs. There are up to 50 active small developers/investors bidding on sites and prime prices have risen to €1.5-€2m per acre.
Small infill sites in suburbs like Blackrock, Ranelagh and Clontarf are making €2m per acre. I see healthy demand continuing but I don't expect prices to rise much more this year.
The industrial market is often referred to as the "barometer of the economy" and that sector has been hit harder than most.
Values are down 70-80pc and secondary property values are probably still falling.
The vacancy rate in Dublin is as bad as 30pc of stock although it has begun to reduce slowly. I don't see values improving for three years. (See page 10).
In Cork, the market mirrors Dublin trends but on a weaker level. An overspill of under-bidders for Dublin property have begun to buy prime Cork covenants.
Good demand for investments in the €2-€3m range was reflected in the sale of the AIB branch in the suburb of Douglas. Office take-up was better than the corresponding period last year and there is no "grade A" space available in Cork city centre.
Prime property values are expected to continue to gradually improve with retail consolidating.
The Galway trends mirror Cork to an extent and occupier demand is improving from a low base. In Limerick, the market is very difficult and hopefully the Opera site regeneration scheme will help to kick-start demand.
In Belfast, the market is very tough and secondary space has been hit particularly hard. Secondary retail rents may still be falling and retailers have a particular problem with city centre rates, which are seen to be out of proportion to market rents and turnover.
I don't think that there will be much improvement in any sectors in Northern Ireland for the rest of the year.
As the weathermen say: "It's a mixed bag." Here's to blue skies for the summer break.