Investment opportunities will grow in 2011

Four industry insiders give their views on the commercial property market

Ronan Webster

Director, development, CBRE

Has the commercial property market bottomed out yet?Rents in prime commercial markets have bottomed out. We believe prime yields are close to the bottom of the curve.

There is still downward pressure on rental and capital values of secondary property. There will continue to be a wider divergence between the value of prime and secondary properties in 2011.

How much investment stock will be offered for sale next year and who will buy it?We expect to see a significant increase in the quantum of investment stock being offered for sale in 2011 as banks and borrowers unwind their positions. There are domestic cash buyers for smaller lot sizes.

Demand will emanate from overseas institutional buyers for larger deals. The market needs stock to be made available or overseas buyers will get frustrated and go elsewhere.

Should Nama approve of the sale of properties below their buy-in valuations?The valuation of the property asset is only one element of a loan valuation by Nama. Accordingly, Nama in conjunction with borrowers will make decisions to sell in accordance with borrower business plans. In some instances, a strategic decision may be made to sell below the property valuation level.

How long will it take the property market to recover from its current difficulties?We believe that the prime end of the market is already emerging from its current difficulties with evident demand from overseas investors at current pricing.

However, it could take three to four years for the secondary sector of the market to experience rental growth, which is the primary driver of value.

Larry Brennan

Chairman and director retail, Savills

Has the commercial property market bottomed out yet?Certain areas and sectors have seen more occupier activity this year and are as a result more likely to see a recovery and an improvement in values in the shorter term. City centre prime offices or prime retail over a certain size threshold are experiencing solid demand with increasingly restricted supply. Other areas and sectors, where significant oversupply still exists will be slower to recover.

How much investment stock will be offered for sale next year and who will buy it?The lack of supply of good quality investment stock was again a major issue this year. We hope that this issue will be addressed in 2011. There is an appetite for property investment opportunities in Ireland from various sources, including Irish private investors seeking secure income in lots of up to €10 million (as witnessed by the recent successful sale of the Aldi investment on Parnell Street) and other institutional investors seeking well-let, prime assets in our main cities and suburbs. Opportunity funds are also present for assets showing higher returns or which require remedial action.

Should Nama approve of the sale of properties below their buy-in valuations?Nama holds the key role in terms of the Irish property market and hence the economy as a whole. The focus must be on getting the investment market functioning and active again and regard should be to doing what is the right thing to achieve this, not the historic buy-in valuation. Markets run in cycles; we must restart this one somewhere, with the right bankable or institutionally attractive properties, to ensure a return of some confidence, which will encourage future interest.

How long will it take the property market to recover from its current difficulties?Impossible to say; the fact that there is occupier and end user demand, albeit focused largely in the prime areas, is encouraging.

Fintan Tierney

Managing Director, DTZ

Has commercial property bottomed out yet?With such little activity in the market in 2010, it is difficult to state what the true levels are at in the marketplace. However, for potential occupiers and potential purchasers of assets, based on their estimate of value against lessor/vendor expectations, there may be some way to go. However, it is fundamentally on a case of asset-by-asset with a greater divergence in prime against off-prime and also by geographic divergence in Dublin against some of the regions.

How much investment stock will be offered for sale next year and who will buy it?We do not know, but Nama is a key factor. There are buyers, particularly foreign equity buyers and some private Irish equity. These potential buyers have been closely monitoring the market for the last two years; it is the time for the deleveraging process to commence.

Should Nama approve of the sale of properties below their buy-in valuations?This depends on Nama's strategy. If Nama wants to hold such a huge portfolio of assets and believes that it can increase the value, then naturally they will not sell. However, for Nama to increase the value of the portfolio, it is necessary to create a market which is non-existent presently so in certain cases, it may be an appropriate strategy. There is also the question over what non-Nama institutions may do in terms of setting market levels so there may be first-move advantage for various financial institutions in the case of certain buyers and assets.

How long will it take the property market to recover from its current difficulties?Different sub-sectors of the property market and different locations will recover at a differing pace. And there remain significant issues in Europe to which the Irish economy is inextricably linked. What is clear is that the deleveraging process must commence if the economy is to start to move to some form of normality. Fresh equity is key.

Peter Stapleton

Managing Director, Lisney

Has the commercial property market bottomed out yet?The market will not bottom out until some reasonable level of activity starts again. While there is some degree of latent demand and some investors waiting for the bottom to be reached, I believe that next year's supply of varied product will attract purchasers from abroad to prime and well-let investment product.

There is an increasing amount of vacant residential property available and this stock is growing which over the next few months will just be sold for best price rather than delaying the agony. This hopefully will be the bottom.

How much investment stock will be offered for sale next year and who will buy it?Nama will bring a considerable amount of stock to the market on a phased basis during the year and this will be located in Ireland, the UK and the States.

The purchasers will be from abroad – from the UK, continental Europe and the States.

Should Nama approve of the sale of properties below their buy-in valuations?I believe that the majority of product offered next year will be prime and will be sold at or beyond the buy-in figures.

Obviously they will sell on some of the more saleable secondary and tertiary property where opportunities present themselves and maybe at below buy-in.

They may sell some low-value residential product off at below buy-in cost in order to inject a much-needed stimulus into the residential market.

How long will it take the property market to recover from its current difficulties ?Firstly, reasonable credit must return to the market and no one has forecasted that yet.