The year ahead: property analysts look at the prospects for 2002

Mark Fitzgerald - Managing director, Sherry FitzGerald

Over the period 1994 to 2000, the Irish commercial property market enjoyed one of the longest periods of buoyant growth, with total returns averaging in excess of 24 per cent per annum. The strength and duration of this boom in the commercial property market served to make its conclusion this year a more difficult pill to swallow. That said, akin to the economy, the property market will recover from a period of lower growth in 2002, although the years when occupier demand drove returns in excess of 38 per cent are unlikely to be revisited in the short to medium term. We anticipate that the lower levels of employment growth will result in a reduction in occupier demand and therefore take-up levels in the office and industrial market. Rental levels are likely to soften, particularly in suburban Dublin office locations where there is a large supply of available accommodation. Like this year, the retail market should perform well in 2002, with continued strong consumer spending and increasing competition among retailers. Finally, despite the lower returns recorded, property investment was still the best performing asset class in the 12 months to quarter three 2001, while the favourable interest rate environment has made many property investments self-financing. That, coupled with the security of income flow, should underwrite the attractiveness of the property market as an investment option in the coming year.

Pat Gunne - Managing director, Insignia Richard Ellis Gunne

The year 2002 will be one of two halves - the first half showing little sign of improvement on the current climate, with continuing low levels of inward investment, and very few significant corporate expansions. In the investment market it is likely that we will see yields softening across all sectors of the market, and values decreasing by up to 10 per cent based on current institutional valuations. The adjustment in the market will be cushioned by the low cost of finance, together with the current level of wealth within the country. The second half of the year should see confidence coming back into the market, as the US shows signs of corporate recovery. With this we should see a number of inward investment projects being reinstigated; realistically, we will not witness real movement until 2003. This will apply equally to indigenous industry, having gone through its own rationalisation in the previous 12 months. 2002 will be a cautious year, with signs of optimism emerging towards the latter half of the year.

Ann Hargaden - Director, Lisney

The Year ahead will be a challenge. 2001 has marked a turnaround in fortunes after seven years of tremendous growth in property. The September 11th tragedy has been described as the cause of our ills, but a property slowdown was already happening by that stage. In fact, statistically the market peaked in late 1998. In many respects, the slowdown is no harm as the price of property had reached too dizzy a height. I believe we will now see sustainable growth. With low interest rates we should avoid the historic roller coaster boom/bust cycles of yesterday.

Prime property will adjust somewhat in yield and rental terms, but not to a significant extent. Owners will simply not sell this type of property unless they obtain the right price. Also, with interest rates so low, they have no other home for money if they liquidate their properties. In my view, secondary properties will be hit harder as funding banks become more cautious. In order to purchase these types of properties, significant equity contributions will be sought from investors, and yields will increase as a result. Property is traditionally regarded as a safe home for investors. When it is compared to alternative investments available on the market over the last 18 months, it will seem exceptional. In my view, investors will return to the market in 2002. In all probability, demand will exceed supply, particularly for prime property, and hence values will remain at reasonable levels.

Fintan Tierney - Managing director, Lambert Smith Hampton

Total returns for investors in commercial property will be approximately 7 per cent this year. This is the fourth year running that commercial property has been the best performing investment medium.

The retail market remains robust with retail sales figures quite strong. Unfortunately, new retail schemes are taking up to four years from lodging an application for planning to schemes opening, which is holding back the market.

The supply of office space in Dublin has increased substantially and equates to approximately five years' demand. However, this does not differentiate between sub-markets with city centre supply equating to approximately 18 months demand. In the industrial market, take-up this year will be 3,229,170 sq ft. Current supply equates to approximately one year's take-up, indicating a market in equilibrium. In summary, objective analysis suggests commercial property will remain buoyant in the short to medium term with opportunities existing in all sectors.

Aidan O'Hogan - Managing director, Hamilton Osborne King

Sentiment at the start of the last quarter of 2001, with occupiers postponing expansionary decisions and focusing on streamlining measures, seems to be changing - for the better. Progress with the war, lower interest rates and oil prices, bottoming out in technology stocks and the knock-on effect of all of these on the American economy have generated a little more confidence and set minds thinking that now is the time to be predatory.

Prime offices remain in demand - but with some extra flexibility in lease terms. Secondary offices are much more difficult. If you're not worried about the location, very low rents can be found. Demand from private investors for quality investments, both at home and abroad, will remain strong as will values. Pension funds will remain net buyers and life funds sellers. Industrial interest has already recovered slightly with minimal oversupply and keen pricing, and values should start to climb.

The minimal impact on the retail market so far may change in the spring, as some slowdown in retail sales impacts on off-prime locations. It will also lead to more prime activity, as the pack shuffles, with existing incumbents capitalising on premium levels and new and existing retailers focussing ever more intensively on prime opportunities. All in all - a better start to 2002 than the finish of 2001 and a positive outlook.

Michael Harrington - Partner, Palmer McCormack

Irish property took time to catch its breath in 2001 after a period of spectacular economic growth. This was the first year we felt a slight tug on the reins, being a useful reminder of just how reliant we are upon the world economy. The suburban office market certainly felt the "global hangover" when "the Y2K party" ended. Technology related demand was significantly down and the banks became increasingly cautious of speculative development funding. The market was in a relatively cautious mode by mid-year before the major jolt of September 11th. Our retail consumer demand remains very buoyant in the lead up to the Euro changeover: retailers are still bidding record rents and private investors are becoming more aggressive. Looking forward, the fundaments are still very strong and market sentiment is improving. On the assumption that the international climate returns to something approaching normality, there is no reason why our property market won't bounce back in time to where it was before the 2001 breather.

John Mulcahy - Managing director, Jones Lang LaSalle

A lengthy period of exceptional growth came to an end this year as the property market took a breather. More of the same is likely in the coming months, but excessive pessimism is not justified.

Deals will continue to be done in 2002, as they have continued this year, and developers, investors and occupiers will continue, as they always do, to seek out opportunities.

The impact of low interest rates is not well understood and acts as a floor on well-let investments.

The property market will follow the general economy but with a time lag.

With general expectations that the economy will come out of the downturn in mid to late 2002, the property market is likely to be sluggish for most of the year.

There will be opportunities but they may be difficult to unearth.

Individual areas, like well-located office, retail and industrial units with strong covenants, will still be attractive to investors.

But an excess of supply over demand in some sections of the office market will have to work its way through the system.

It will probably be 2003 before there is a universal upswing in the market.

For those buying in the UK - beware of perfidious Albion!

Nicholas Corson - Director, Finnegan Menton

Next year will kick off with interest rates at historically low levels, with even further drops predicted and five-year fixed rates are available off a base rate of 4 per cent plus margin. With good advice and keen funding, prime investments could be self financing. For properties with the right criteria, non-recourse and "bullet" loans will be obtainable from the institutions. The turbulence in the equity markets over the past year appears to have changed the sentiment of many private investors, who will lead the way in the investment market next year. Demand continues to outstrip supply and there will be continued appetite for large investments. With fewer tenants in the marketplace, investors will be paying particular attention to the quality of the covenant that secures their investment. The sentiment on the ground is more optimistic than many would suggest and with a basically sound economy and low interest rates, I feel the commercial market will continue to perform well, if not at quite the same volumes as previously.