Ireland Bi-Monthly Research Report November 2011

Push To Finalise Property Transactions Before Year-End

Dublin, 1st November 2011 – Property consultants CBRE today released their final bi-monthly report for 2011, commenting comprehensively on the latest trends and transactions in the occupier and investment sectors of the commercial property market in Ireland.

Please see full PDF copy of this report, available to download at the link below:

According to the new report, the investment sector of the Irish commercial property market remains firmly in paralysis in anticipation of the long-awaited proposed review of upward only rent review provisions in business leases, which has dragged on now for almost a full year and effectively stalled transactional activity. However, according to the property consultants, despite the economic and financial situation that has dominated the global and national headlines in recent months, there has been a meaningful level of transactional activity in all of the occupier sectors of the Irish commercial property market and there are a number of transactions in negotiations at present, many of which will be signed by year-end.

Key Highlights

Office take-up of some 126,921m2 was achieved in the Dublin market in the first nine months of 2011, which is on par with the level of letting activity achieved in the capital in the entire year last year. Total take-up of some 150,000m2 will be achieved in the capital in 2011 according to CBRE.

Office rents in the west and south suburbs of the city experienced further falls in recent months although prime rents in other locations in Dublin have remained stable.

While CBRE have been eluding to an emerging scarcity of Grade A office buildings of a certain size in Dublin 2/4 for some time now, they say that it is now evident that this will be alleviated to some extent by modern buildings being vacated and coming back on the market to let as occupiers consolidate operations or exit the Irish market.

Despite the complete lack of new development in the pipeline, office buildings coming back onto the market will result in the city’s vacancy rate remaining relatively high for the foreseeable future, regardless of the strength of underlying take-up.

There is still pent-up demand amongst retailers for prime retail premises with a considerable volume of letting activity occuring as tenants continue to take advantage of the ability to negotiate attractive deals with landlords in the current climate.

A cumulative 107,242m2 of take-up was achieved in the Dublin industrial market during the first nine months of 2011 with 40,469m2 let or sold in the capital during the third quarter of the year specifically.

A significant proportion of the current demand for industrial accommodation is emanating from companies that are expanding operations as opposed to new entrants. However, as a result, the vacancy rate in the industrial sector remains relatively high as older premises come back on the market to let.

There has been a notable increase in the number of sites being offered for sale in recent months and there have been a number of successful land sales completed. The demand for sites, which CBRE say is predominantly emanating from cash buyers and special purchasers, is ultimately dependent on the location and the quoting price, with reasonably strong demand prevailing for lot sizes of less than €2 million in good locations.

The hotel sector, particularly in Dublin, is showing great resilience with steady growth maintained over the last 12 months. There is a particularly encouraging level of international interest in the Morrison Hotel in Dublin city centre, which was recently brought to the market on the instructions of receivers for NAMA, guiding €25 million. To date, there have been over 70 expressions of interest in this prime hotel asset, which is trading very well, with enquiries from all over the world. The first round of bids for this hotel is due in the next couple of weeks.

While there is disappointment at the slow rate at which hotels have been brought to the market over the course of 2011, once some of the more high-profile hotel transactions are completed, CBRE expect to see more hotel properties being formally launched for sale.

Largely as a result of uncertainty around the issue of rent review reform, Irish capital values declined by a further 4.6% in the three month period to the end of September, representing an almost 65% decline from peak. There have been only four investment transactions of note signed in the Irish market to date in 2011.

The fact that NAMA have recently announced plans to provide staple financing to facilitate some commercial property purchases is encouraging as is the news that the Government are possibly considering reducing the rate of stamp duty on commercial property in the forthcoming Budget. Both of these measures, while unlikely to significantly stimulate transactional activity in their own right, will certainly help to facilitate transactions.

As we approach year end, there is up to £5 billion of investment property being offered for sale in London City, with quite a few lot sizes of over £100 million on the market. In contrast, there is a scarcity of prime product available in the West End of London. This needs to be borne in mind by Irish investors who continue to be net sellers of real estate in the UK market.

Despite the underlying economic situation in Northern Ireland, there has been quite a bit of activity in the occupier sectors of the property market in the region in recent months. Indeed, over 20,000m2 of office lettings were signed in Belfast in the first nine months of 2011. A number of employers in the region including Capita, PWC, Deloittes and Ernst & Young have recently announced expansion plans, which is very encouraging.

In the retail sector, G-Star Raw have completed the fit out of a new store on Ann Street in Belfast while two new retail stores are currently being fitted out at Arthur Street, close to the Victoria Square shopping centre, for Le Creuset and Jack Wills - their first stores in Northern Ireland.

Commenting at the launch of the November bi-monthly report, Marie Hunt, Director of Research at CBRE who compiled the report, said “2011 has been a busier year than anticipated in the occupier sectors of the Irish commercial property market, largely driven by opportunistic occupiers who have seen an opportunity to expand or relocate and take advantage of the relatively attractive lease terms on offer. There has also been a notable increase year-on-year in the volume of hotel and development land sales completed. There are a significant number of transactions in negotiations and the push will now be on to get these transactions completed before year-end.

In contrast, there is limited transactional activity to report in the investment sector of the market. There are some interesting investment properties currently being offered for sale, which if they sell, will be important barometers for pricing of Irish investment assets. However, the reality is that despite the appetite for prime investment properties, particularly from international investors, transactional activity will remain muted until such time as there is clarity once and for all on the issue of upward only rent reviews. A year has effectively been lost and opportunities missed while we have awaited clarification from Government on this issue. Funding is still proving difficult to secure, which hasn’t helped the situation either. It is encouraging that NAMA is now prepared to offer vendor financing on some of the assets that they are bringing to market. While this won’t significantly stimulate transactional activity in its own right, it is certainly a welcome development”.

- ENDS -

CONTACT: Marie Hunt – 00 353 1 6185543 / 00 353 87 2727115 or marie.hunt@cbre.com

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). The Company has approximately 31,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.

In Ireland, with offices in Dublin and Belfast, CB Richard Ellis is the country’s largest commercial real estate services company, now employing over 140 employees and offering a full range of property services including property sales and acquisitions, leasing and management, investment, corporate services, project management, consultancy, valuations and research. CB Richard Ellis Ireland has been listed among the Top 100 Best Workplaces in Europe & the Top 50 In Ireland 2011, for the seventh year running. Please visit our website at www.cbre.ie or www.cbre.ie/ni.

CBRE | Bi-Monthly Research Report | Nov 2011
CBRE | Bi-Monthly Research Report | Nov 2011