Credit crunch reduces number of deals in Irish market

THE GLOBAL credit squeeze is reducing the number of deals in many sectors of the Irish commercial property market, most notably in the investment area, according to a new report from CBRE.

"The total volume of available debt has diminished and banks across Europe are much more cautious about who they will lend to, the types of property they lend against and the terms on which they will lend. Where finance is available, it is generally at lower loan-to-value ratios and a higher margin against market interest rates although these additional costs are in some cases being offset by generally lower market interest rates," says the author of the report Marie Hunt.

The report noted that the more restricted availability of debt finance was reducing the ability of some investors who were heavily reliant on debt to purchase. Equity investors are expected to be more dominant over the next 12 to 24 months as a result.

CBRE said that there did not appear to have been any retrenchment of office occupier requirements in Ireland with office demand remaining very strong - regardless of a slow economic climate - but this was a threat if the credit crisis continued indefinitely.

The report said that probably the most important impact of the credit crunch related to the "real" economy. Consumer credit was being reduced, which would ultimately impact on consumer spending and, in turn, economic growth potential across Europe.

Similarly, given the lower growth prospects for the major global economies, many companies were being cautious in their investment plans which would further reduce business growth among their suppliers. If this, coupled with the weakening housing markets in some European countries, fed through into a wider economic downturn then this would undermine rental prospects in all property sectors.

CBRE claims that market fundamentals are solid across most European markets - aided by the credit crunch reducing speculative development starts.

"There is no doubt that weaker economic growth will reduce rental growth prospects in many markets, including Ireland, but provided it does not turn into a significant recession a pause in growth is more likely than falling rents. This, in turn, will help support capital values and should stimulate a return to higher levels of investment activity once the current financial uncertainties moderate," according to the report.

The report accepts that there are downside risks to this scenario - most notably, that the economic slowdown could turn into a more severe recession. It was too early to say what would happen although it was worth noting that the consensus economic forecasts continued to suggest that GDP growth across Europe would remain positive in 2008.