Market near bottom but no rebound in sight

2010:Outlook

Peter Stapleton, MD, Lisney

Has the commercial property market bottomed out yet?The market is close to the bottom. Activity is very subdued. Sales are few and far between.

What will be the peak-to-trough percentage decline in capital values in this downturn?From 50 to 85 per cent.

Which segment of the market has been hit hardest and which will be the first to recover?Unzoned land has been hardest hit. Vacant Georgian offices are struggling, ditto vacant units in provincial shopping centres. Commercial investments in good locations which are not over-let and on leases of 12 years or more without break options will be the first commercial asset class to uplift.

Do you think Nama will get bank lending moving again?Yes, but we will see a shift to more cautious lending criteria. Speculative commercial acquisitions will be largely cash-based from now on.

What changes do you expect to see in the commercial property market in 2010?More leases surrendered to landlords. No new construction start ups until oversupply in mopped up. Older office buildings will become difficult to let. New business leases will be shorter with greater flexibility to break leases even with penalties. The needs of investors will no doubt lead to higher equity requirements with more emphasis on cash flow and a less liquid property market.

Fintan Tierney, MD, DTZ Sherry FitzGerald

Has the commercial property market bottomed out yet?For prime assets in top locations it's very close to the bottom. In 12 months we will look back and see that the market stabilised during the first part of 2010 in most areas.

What will be the peak-to-trough percentage decline in capital values in this downturn?We anticipate that the IPD index in Q1, 2010 will show an average drop of 60 per cent from peak levels. There will be examples of individual assets having fallen by up to 70 per cent and even greater drops in the case of development land.

Which segment of the market has been hit hardest and which will be the first to recover?Development land has been hardest hit and prime investment assets will be the first to recover.

Do you think Nama will get bank lending moving again?Nama will be a catalyst, but there will be a time lag before credit flow starts. When credit flows, it will be at a low level, increasing slowly thereafter.

What changes do you expect to see in the commercial property market in 2010?More tangible fallout in the economy and this will crystallise events in the commercial market. The market will need to provide a more sophisticated and analytical approach to providing asset management solutions and a roadmap for dealing with debt.

Ronan Webster, director, development, CBRE

Has the commercial property market bottomed out yet?We are bouncing along at the bottom in the commercial property market. In years to come, 2009 will be seen as the low-point of the cycle.

What will be the peak-to-trough percentage decline in capital values in this downturn?A 55 per cent decline for income-producing properties in major urban centres. Greater declines are evident on vacant buildings and development land.

Which segment of the market has been hit hardest and which will be the first to recover?Provincial development land has been hardest hit and prime income-producing product will be the first to recover.

Do you think Nama will get bank lending moving again?Not in the short-term. Caution will be the order of the day for property lending as banks seek to shrink their exposure to property, not only in Ireland, but right across Europe.

What changes do you expect to see in the commercial property market in 2010?We will see a much greater level of activity in 2010 than we saw in 2009, as sellers adjust prices to meet the expectations of buyers.

Angus Potterton, MD, Savills

Has the commercial property market bottomed out yet?Yes, or very nearly. Investors are starting to actively look again as they see value. Investment turnover will be only €125 million for 2009 compared to €3 billion at the peak in 2006.

What will be the peak-to-trough percentage decline in capital values in this downturn?Values will be down by 30 to 50 per cent.

Which segment of the market has been hit hardest and which will be the first to recover?Development land has been hit the hardest. Sales activity has been minimal, with the majority of activity in lettings. Retail and offices are well positioned for any rebound.

Do you think Nama will get bank lending moving again?Until the process of valuing loans is complete and the transfer to Nama begins, it is hard to see how lending conditions will improve. But if Nama eases the capital needs of the banks and further large capital requirements don't emerge, the banks should be able to resume lending by the end of next year. A concern will be that the banks will focus more on improving their balance sheets than actually lending.

What changes do you expect to see in the commercial property market in 2010?Investors, particularly from overseas, to return to the Irish market. Turnover will increase to €750 million in 2010. Letting activity to dominate over sales.

Niall Gaffney, chief executive, IPUT

Has the commercial property market bottomed out yet?The fall in capital values suggest investment yields have largely bottomed. Yields are equivalent to those in the early to mid 1990s yet we could see falls in capital values in the first half of 2010 but this will stem from adjustments in the rental sector.

What will be the peak-to-trough percentage decline in capital values in this downturn?By the time this cycle runs its course values may have shifted from their peak by over 60 per cent.

Which segment of the market has been hit hardest and which will be the first to recover?Retail has had the biggest adjustments in value and we expect prime well-let city centre offices to hold and ultimately recover their values over the medium to longer term.

Do you think Nama will get bank lending moving again?Too early to judge what the implications of Nama will be for the economy. But the stabilising effect of a recapitalised banking system should begin the process of resuscitating the economy.

What changes do you expect to see in the commercial property market in 2010?Given the potential value that the Irish market may now represent, I would expect a greater presence of overseas investors in the Irish market.

John Moran, MD, Jones Lang LaSalle

Has the commercial property market bottomed out yet?It's very close to the bottom but we wouldn't like to call it yet. While we believe yields for prime properties may have reached the bottom, we're seeing evidence of declining rental income. Hopefully, by the middle of next year the absolute worst should be over.

What will be the peak-to-trough percentage decline in capital values in this downturn?If the peak was December 2007, then the decline since is 53 to 57 per cent.

Which segment of the market has been hit hardest, and which will be the first to recover?Retail is hardest hit. I believe retail rents will move before office rents.

Do you think Nama will get bank lending moving again?Yes, but not as quickly as hoped and not like we were used to in the recent past.

What changes do you expect to see in the commercial property market in 2010?Polarisation of prime and secondary yields. More sale and leasebacks from corporates. More international retailers opening in Ireland - particularly in the teenage fashion market. The end of PNP (pre-Nama paralysis) and some improved market liquidity. Cautious improvement in sentiment in 2010, increased interest by foreign investors in Ireland and a widening of the investor base.

Stephen Vernon, chairman, Green Property

Has the commercial property market bottomed out yet?No. The concern is rising interest rates as the cycle moves on.

What will be the peak-to-trough percentage decline in capital values in this downturn?Some assets (development land unripe for development) by anything up to 90 per cent but quality investments with secure income streams in prime locations less than 30 per cent in some cases.

Which segment of the market has been hit hardest and which will be the first to recover?Probably retail due to weak consumer demand and gross oversupply. Recovery: maybe offices in that it will be led by institutional demand and traditional capital which favours more straightforward investments.

Do you think Nama will get bank lending moving again?Don't hold your breath. Banks will be slow to make more dangerous loans and much SME lending is in that category. It's no use blaming the banks if the economy is tanking and there's no one left to lend to.

What changes do you expect to see in the commercial property market in 2010?Pressure on rents resulting from an economy under stress. There will be a growing awareness of the problems of good loans, rather than just land and development issues.

Nicholas Corson, director, Finnegan Menton

Has the commercial property market bottomed out yet?It's hard to call the bottom of any market but we must be close to it. I don't think we are close to recovery yet and I don't anticipate a strong bounce but, when sentiment changes, markets move, particularly in the investment market.

What will be the peak-to-trough percentage decline in capital values in this downturn?Values will be down 50 per cent or worse and that fall has already taken place. Development land will show significantly higher declines in values.

Which segment of the market has been hit hardest and which will be the first to recover?Development land has been hit the hardest. Prime investments will be the first to recover particularly where they are of sufficient quality and size to attract overseas buyers.

Do you think Nama will get bank lending moving again?Yes, but gradually. Nama will hopefully stabilise matters and enable the economy and banking gradually to get back to business.

What changes do you expect to see in the commercial property market in 2010?Little change in the first half of 2010 but some deals to be seen in all sectors. The stand-off in the capital markets won't last forever and there will be occupiers, particularly in the office market, taking advantage of the value to be had.