MARKETREPORT:A new report says it is difficult to see how last year's strong investment spend by Irish investors at home and overseas can be replicated this year.
WITH INVESTMENT and development sectors of the commercial property market severely affected by the current slowdown, office lettings in Dublin have remained the strongest performing area in the first three months of this year.
A new report from CB Richard Ellis shows that there was a take-up of 45,000sq m (484,830sq ft) in the opening quarter, more than 10 per cent higher than the five-year average.
Almost 70 office lettings were signed in Dublin since the beginning of the year, most of them relatively small, but several major corporate lettings - including the proposed Bank of Ireland back office and AIB Capital Markets - are due to be confirmed in the coming weeks.
However, there is increasing speculation that Bank of Ireland may not proceed as expected to rent a front office headquarters at this stage because of the international credit crisis and the fall in its share price. The current economic difficulties are already slowing down many letting deals and several significant transactions, due to have been completed in recent weeks, are not now expected to be wrapped up for another month or so.
Looking at the perennial threat of an oversupply in the Dublin office market, CBRE claims that office development "is coming on stream on a very controlled basis".
It says that demand is running at more than twice the 10-year average take-up in Dublin. Around 300,000sq m (3.229 million sq ft) of new space is due to be completed in Dublin over the next two years and the agency says that it is "too speculative" to document what schemes were likely to achieve planning, obtain funding or be developed from 2010 onwards.
Marie Hunt of CBRE says that new office developments that have not yet broken ground could potentially be put on hold given the current market environment. More rigorous assessment of new office schemes was "the welcome outcome of the current funding crisis" as this would ultimately prevent oversupply and sustain rental values, even if occupier demand starts to ease.
The CBRE study shows that 72 per cent of office accommodation signed in Dublin in the first quarter of 2008 was in the city centre region with Dublin 2 and 4 accounting for two-thirds of these lettings. A further 28 per cent of office lettings in Dublin city centre were in districts 1, 3 and 7. The balance of 28 per cent of the lettings were in the suburbs.
The report says that a lack of funding arising from the global credit squeeze has stalled investment transaction activity across Europe in recent months, a trend that is very evident in the Irish market with only five investment transactions valued at €235 million completed in the first quarter of the year.
CBRE says that with transactional activity effectively halted until such time as conditions in the credit market are alleviated, it was difficult to see how last year's total investment spend by Irish investors of over €2.2 billion in the Irish market and a further €10 billion overseas could be replicated in 2008.
The agency suggests that prime office yields in the Irish market have shifted by 25 basis points to 4 per cent since the beginning of the year, having remained stable at 3.75 per cent for all of 2007. The report also speculates that secondary office yields are ranging from 4.75 to 5.25 per cent but admits that there has been no transactional activity to support this view.
'A lack of funding from the credit squeeze has stalled investment transaction activity
