Capital values down 53% from peak

While values are still falling new research points towards the market beginning to stabilise, writes JACK FAGAN

CAPITAL VALUES in the Irish commercial property market have now fallen by 53 per cent from their peak in the third quarter of 2007, according to the latest index from estate agent Jones Lang LaSalle.

However, the report published today shows that the pace of decline during the three months up to the end of September continued to slow when compared to what the agency called “the index trend pattern”.

The news that there are signs of some stabilisation of the market will be welcomed by a much weakened industry which has been experiencing its worst crises for decades. Sales of commercial property investments have been few and far between this year because of the banking crisis and the fear that values could slip further.

However, with an increasing number of overseas investors now showing interest in Dublin – because of the higher yields available – all the indications are that they will acquire a number of high quality investments with a long term guaranteed rental income.

According to the Jones Lang LaSalle study, the overall index for commercial property fell by 17.7 per cent in the first three quarters of 2009. The slippage was 5.2 per cent in the third quarter, 4.7 per cent in the second quarter and 8.9 per cent in the first three months of the year.

Dr Clare Eriksson, head of research at the agency, said the trend indicates “some stabilisation of the market which is a positive sign for commercial property in Ireland”.

The index also showed that capital values fell by 7.1 per cent in the third quarter of 2009 and by 22.5 per cent in the nine-month period since last January. In that time the downward movement in capital values was primarily driven by the negative rental movements rather than yield adjustments.

Industrial capital values showed the steepest fall of 8.4 per cent in Q3 and by 36 per cent in the year to September.

Capital values for offices dropped by 8 per cent in the quarter and by 23 per cent in the nine-month period to the end of September.

Retail capital values slipped by 5.6 per cent in Q3 and by 21.5 per cent in the three quarters to the end of September.

Rental values across the entire index portfolio fell by 6.8 per cent in Q3 and by 15.8 per cent since January. The office sector did worst with a decline of 9.1 per cent in the quarter and 18.4 per cent in the last nine months. Industrials were down 4.8 per cent in the quarter and 13.1 per cent over the last three quarters of 2009. Retail rental values were back 4.2 per cent in Q3 and by 12.8 per cent in the year to September.

The report also showed that income levels fell by 1.2 per cent in the third quarter but had a marginally positive rise of 0.9 per cent in the year to September. Falls in income levels were as a result of “tenant distress” and stemmed from vacancies combined with some landlord incentives in the form of rent-free periods.

The considerable problems facing the commercial property industry are not shared by the UK where the market delivered the highest monthly price growth for more than three years in September. This is seen as a remarkable comeback for a sector that looked to have been almost wiped out only a matter of months ago. Investors are now chasing commercial property and some are complaining that the market has become too hot again.

The switch in sentiment has been tangible as investors look to take advantage of the slump that wiped off about 45 per cent from prices from the peak in 2007 until the beginning of the summer.

The recovery has been building since, with IPD, the benchmark index, rising 1.1 per cent for September, the highest since June, 2006. The UK fell first and fastest, and international investors in particular have been swooping into the London market. However, there remain the sceptics who are holding back, worried that the bigger the bounce, the harder the next fall.

D4 LETTING: OSG Group takes 2,100sq m of space at seaside office block

The OSG Group, the outsource serviced provider to the insurance and financial services sector, has leased 2,100sq m (22,604sq ft) at Merrion Hall on Strand Road in Dublin 4.

The move was triggered by a need for extra space due to the expansion of the company.

The 10-year lease is believed to provide for a rent close to the quoting rate of €236.8 per sq m (€22 per sq ft).

Merrion Hall, a three-storey building designed by the late Arthur Gibney, was the base for Irish Shipping and subsequently Córas Tráchtála and Enterprise Ireland. Its location overlooking Dublin Bay, extensive car-parking and proximity to the Dart appealed to OSG.

Emma Murphy of commercial agent HWBC, who handled the letting, is now seeking one or two tenants for the remaining 2,700sq m (29,063sq ft) over an entire first floor and part ground floor with its own lobby and parking. Ms Murphy is offering flexible lease terms on the property.