Dublin 'worst value' in Europe for property investment
DUBLIN, capital of the first euro-region country to report an economic recession, offers the worst real estate investment prospects among Europe’s major urban markets, PricewaterhouseCoopers LLP said.
phas The Irish capital ranked last among 27 European cities judged for their property investment and development opportunities, according to the annual survey of 520 real estate professionals. Dublin also came second to last, after Moscow, as the riskiest market.
Irish commercial real estate values declined almost 24 percent in the 12 months ended Sept. 30, according to London- based researcher Investment Property Databank. The collapse of the housing market and restricted lending by banks contributed to Ireland’s slower economic growth, which in turn curtailed demand for commercial space.
The Irish “were the longest at the party and now have the biggest hangover,” John Forbes, PwC’s head of real estate, said at a presentation in London. “We’re moving from a capital market crisis to an occupier crisis.”
Values of shops, offices and warehouses in the 27 European cities PricewaterhouseCoopers surveyed are all expected to fall this year as economies slow or enter recession, making it harder for tenants to pay rent. Already commercial tenant defaults are rising, Forbes said.
Values are likely to fall the least in Munich, according to the survey respondents.
Consensus showed the UK commercial real estate market will fall 50 percent from its peak in June 2007, meaning prices may have as much as 20 percent further to decline this year before reaching the bottom towards the end of 2009, Forbes said.
The shortage of property financing will be a continued challenge, according to the survey.
Banks are rationing credit as they rebuild balance sheets battered by losses or writedowns totaling $1.06 trillion to date. That will limit the number of large transactions and restrict loans even to borrowers with proven investment records and good relationships with their lenders, the survey found.
Banks are unlikely to call loans “because the alternative is big write-downs,” Forbes said.
The slide in property values is also deterring investors who have cash, Forbes said. Lower oil prices and the slump in capital markets mean sovereign wealth funds have less money to invest. Qatar and Kuwait have stepped in to prop up local banks and stock markets.
Institutional investors such as pension funds, endowments and life insurers are also unlikely to increase their real estate allocations, Forbes said.
“Not everybody is going to get through the next year,” he said. Investors who bought real estate near its peak and relied on debt to make purchases are going to be “struggling for survival.”
PricewaterhouseCoopers compiled the study for the Urban Land Institute by surveying brokers and analysts from the continent’s largest property investors, including Deutsche Bank AG’s RREEF, ING Real Estate and Morgan Stanley.