Mark FitzGerald Chairman, Sherry FitzGerald Group
What should Nama’s strategy be in 2013?
From the perspective of economic and social recovery we would see Nama beginning to fund residential and office development in some of our key cities. A more active role in Ireland comes after Nama being busy in the London market.
After four years of market contraction, the commercial and residential markets have both begun to stabilise, most notably through the uplift in market activity. The overall commercial and residential market in 2012 should exceed €6 billion for the year. Pure investment market activity is likely to reach €750 million in 2012 – a notable increase from less than €200 million in 2011.
Nama’s objective should be to marry the demand for product while generating liquidity for itself and its debtors. Nama’s staple finance should be maintained and expanded as appropriate in the year ahead.
Have commercial property values stopped falling?
The most straightforward answer to this is that commercial values have begun to stabilise nationally, especially in the key cities. This is notable for prime assets – Grade A1 offices in Dublin’s Central Business District.
The same could be said for Ireland’s prime hotels and shopping centres. But the gap between prime and secondary assets is widening.
Well-located and fit-for-purpose properties will stabilise and indeed increase long before the more challenged units in less popular locations.
What part of the commercial market would you recommend to investors?
The two markets that stand out to me at the moment are the Central Business District office market in Dublin and the Galway city office market.
The Galway market has the lowest vacancy in the country and Galway benefits from BMW categorisation for foreign direct investment.
In Dublin occupier demand has improved steadily over the past two years, generating a shortage of sizeable Grade A space. Unless development soon begins there will be upward pressure on rental levels over the next 12-18 months with a knock-on impact on returns and values.
Indeed, for investors looking for capital appreciation in the medium term, but without requirement for immediate liquidity, investment in well located residential and commercial development land in key cities is worth considering.
How long will it take for the market to recover?
When Europe recovers, Ireland is likely to recover quickly. Ireland led Europe into the crash and looks like leading it out of it. Ireland is seen as a European recovery play. Moreover, if Ireland continues to remain on course, as I anticipate that it will, then I think when the history books are written, they will say that the recovery began in 2012 in our cities and key regional centres, and spread to most other locations over the next three to five years.
James Nugent MD, Lisney
What should Nama’s strategy be in 2013?
They should concentrate on disposing of properties where they believe there is limited growth potential; as time goes on, these assets will prove more difficult to shift and there is no real return to the taxpayer by tying up resources with their ongoing management. In addition, they do need to sell some (but a limited amount of) prime assets perhaps with staple finance.
More importantly, I’d really like to see strong evidence of Nama rolling out the €2 billion of investment which was announced earlier during the year and there is a case to be made for supporting office refurbishments, limited office development and residential (housing, not apartment) schemes.
Have commercial property values stopped falling?
IPD (Investment Property Database) is showing a fall of 5 per cent over the past 12 months but I think these values have stopped falling. Some sectors may still be at risk to further falls. I’d have a concern about some out-of-town retail properties in certain provincial towns.
What part of the commercial market would you recommend to investors?
There is a strong case for rental growth in Dublin city centre office buildings which should lead to yield compression and as a consequence good capital appreciation. The exact building selection is really important but I believe there is currently good value, especially with some of the older buildings – I’d be very fussy about the location though.
How long will it take for the market to recover?
Whilst I expect there are reasonable growth prospects for commercial property over the next 10 years, I don’t think we will witness 2006/2007 prices for a long time. In terms of getting back to normal transactional volumes (whatever about value), this can only happen when the banks start lending and I suspect this will not be for two or three years.
John Moran MD, Jones Lang LaSalle
What should Nama’s strategy be in 2013?
In terms of sales, continue to take advantage of overseas markets, particularly in the southeast of the UK.
Closer to home, improve and speed up decision-making and reduce the level of bureaucracy, which is starting to place real strains on the system.
Release good quality opportunities on an orderly basis to help set floors and benchmarks for values. Make results more important than process.
Have commercial property values stopped falling?
For absolute prime we think that we are at the bottom. There is still further to go on secondary assets and land. Primarily driven by occupational uncertainty.
What part of the commercial market would you recommend to investors?
The best sector of the market for an investor is dependent on their risk and return appetite. Greater returns will be made by those following an opportunistic strategy, eg buildings with short leases requiring refurbishment and development sites and redevelopments, but the returns have to recognise that this is a higher risk strategy. What cautious investors should focus on is long cash flow- driven properties regardless of sector offering relatively high income yields.
How long will it take for the market to recover?
We expect recovery in the office sector in 2013 with potential for rising rents in prime buildings. This will lead to yield compression. Retail has a little way to go and there is probably a further year of difficult trading conditions. Having said that, in liquidity terms we are starting to turn the corner, but there is still a long road ahead. What is encouraging is the level, depth and quality of capital that has surfaced, with some of the biggest names in the world featuring on the Irish stage.
Larry Brennan Chairman, Savills
What should Nama’s strategy be in 2013?
Nama needs to have regard to what the non-Nama banks are doing.
Loan sales and portfolio disposals are now features of the Irish market.
These obviously have impact on the Nama loan book – some positive, some negative.
Nama has an opportunity to act on the positives, such as the obvious interest in the core Dublin office, retail and multi-let family unit investment markets and guard against, for example, the impact that loan book disposals will have on the secondary markets.
Have commercial property values stopped falling?
Yes, the prime markets have stabilised and arguably in certain sectors and locations, such as prime Dublin offices where supply is limited, we are likely to see some rental growth and capital appreciation.
There is, however, significant supply in other areas, particularly in secondary non-prime locations.
Values of these properties may have a little further to go.
What part of the commercial market would you recommend to investors?
Prime offices, where there is a real prospect for rental growth, are attracting significant interest.
Also some of the better multi-unit residential investments on offer show reasonable running yields with solid income at prices well below replacement cost.
My own personal favourite would be prime high street retail.
I believe both Grafton Street and Henry Street are now undervalued from a rental perspective, as are the prime trading locations in Cork and Galway.
There will be some clever investments made here.
How long will it take for the market to recover?
The market is segmented by asset class, location, quality of building, lot size, and so on, so it is not correct to generalise about it.
The positives are that occupier and tenant demand has been good so far in 2012.
We have also seen good investment activity, particularly in the prime office sector.
Smart international money is actively investing in Ireland.
However, this is against a backdrop of circa € 70 billion of potentially challenged property assets on the books of Nama and non-Nama banks.
Supply will be the issue that will hold overall values back. The return of sensible and stable lending to the market is also essential.
However, I think the 2012 prime buys will be considered to have been very well timed.
Michael Harrington Executive director, CBRE
What should Nama’s strategy be in 2013?
Release more investment product to take advantage of renewed international interest in Ireland and to build on the disposals of Edward Square and One Warrington Place this year. Rent Reduction Guidelines have been working well but support will be needed as turnovers begin to recover, particularly where lease rents were struck in better days.
Have commercial property values stopped falling?
Prime Dublin property values across all sectors have stopped falling, buoyed up by improved occupier demand, virtually no new supply pipeline and considerable investor demand for the best of product. Provincial property and secondary stock still have a bit to go where tenants are thin on the ground and deeper discounts are sought by cash buyers.
What part of the commercial market would you recommend to investors?
Grafton Street or Henry Street retail with a minimum ground floor plate of 200sq m looks good value and the larger the space, the better the prospect for rental growth.
The sale of State Street’s HQ in Dublin’s docklands has also shown how much international demand there is for top quality offices and similar docklands product is likely to outperform the market. Well located development land is exceptional value in historic terms but in most cases the true potential is beyond the horizon and not for the faint-hearted.
How long will it take for the market to recover?
It is impossible to say how long it will take if the target is the heights achieved prior to 2008 but it is fair to say that recovery in specific sub-sectors is already well under way. The outlook for 2013 is cautiously optimistic and if we as a nation can weather the upcoming budget with the same resilient spirit that got us through previous austerity adjustments, we should all be in a better place this time next year.
