COMMERCIAL PROPERTY values are continuing to decline despite the growing international investor interest in the Dublin market and the completion of a number of significant sales and lettings.
The latest index from the London researcher IPD shows that capital values declined by a further 1.8 per cent in the three months up to the end of June and have now fallen by a cumulative 66 per cent since September 2007. IPD says the unprecedented falls have made Irish property "some of the most discounted in the world" and means that income returns in Ireland are hard to beat at over 10 per cent on an annual basis. This was making Irish property competitive again though it was dependant on sustainable tenants being found.
The SCS/IPD Ireland Quarterly Property Index also shows that while the overall returns were in positive territory for the third consecutive quarter, at 0.6 per cent, they also fared better than the UK where the growth was only 0.3 per cent in Q2.
Rental values are continuing to show a relative stabilisation, slipping by only 1.1 per cent in the second quarter - a vast improvement on the 47 per cent decline between September 2008 and March 2012. Phil Tily, IPD's managing director for Ireland and the UK, said that while there had been a number of international lettings in the Dublin retail and office sectors, the impact of austerity cuts and the wider Eurozone crisis were still limiting occupier demand and pushing down market values.
The hard-hit retail sector recorded the only negative return in Q2 at -0.1 per cent, having experienced a more notable rate of decline in capital values - down 2.2 per cent - compared with 1.5 per cent in the office and industrial markets. Turning to rental values, IPD concluded that the retail and industrial sectors were worst affected at -1.5 per cent compared to 0.7 per cent in the office market. Tily said that income yields across the three sectors were now extremely competitive, with industrial assets offering 11.5 per cent and offices 10.6 per cent.
Obviously, investors would be taking on a considerable degree of risk by investing in such properties, but for the third consecutive quarter overall returns had now been positive while rental and capital declines had been considerably less severe.
This implied a degree of stability was returning to the market. "However, it should be noted that reversionary yields are only 6.6 per cent overall, as a considerable portion of leases were signed at the top of the market. When these expire, income on a number properties will fall considerably back to market levels and this will impact on future returns."
Roland O'Connell, president of the Society of Chartered Surveyors Ireland, said investor confidence, availability of finance and availability of the right type of product were still the main issues in the market.
An increase in sales in 2012, including the Alliance Building and Riverside II, demonstrated there were buyers for better-quality buildings and that investor confidence was improving, although availability of finance would remain a brake on the market for the immediate future.
