Higher hopes for commercial property

ACTIVITY IS expected to return to the commercial property market in 2012, with values predicted to increase for the first time since 2008. However, transaction volumes will likely be constrained by debt financing for some years to come.

While values have fallen each year since 2008, experts are now optimistic that 2012 will mark a reversal of this trend, as measures such as the reduction in stamp duty for commercial property from 6 per cent to 2 per cent in last December’s budget have an effect.

“2011 marked the third consecutive year of market decline. However, the combination of measures introduced in Budget 2012 and the resolution on upward-only rent reviews suggest that 2012 will be a year of improved activity,” said Marian Finnegan, chief economist of DTZ Sherry FitzGerald.

Marie Hunt, executive director at CBRE Ireland, agreed, arguing that the market should stabilise in 2012 “and begin to emerge from the most significant correction it has ever experienced”.

The National Asset Management Agency is expected to play a key role in 2012, as it releases more properties to the market, thereby increasing transaction volumes and bringing in foreign buyers.

“At the prime end of the investment and hotel sectors, overseas investors are likely to be the most dominant players,” Ms Hunt said.

She expects that rents for prime buildings will “eventually stabilise” in 2012, although those for secondary properties will continue to decline.

“The road to recovery will however be a long one and values will only stabilise once there is sufficient transactional evidence available to provide clarity on pricing. The real estate sector now has to adapt to a scenario where debt funding is going to remain severely constrained.”

Occupancy rates will likely remain subdued, as companies delay or postpone strategic location decisions due to economic uncertainty. Ms Hunt expressed concern that a European financial transaction tax could pose a threat to occupancy levels.