Values down 40% in 2008 says Jones Lang report

A long running Irish property index shows that the biggest losers last year were owners of retail property who saw capital values fall by 45.1 per cent

THE LATEST Irish property index has confirmed the dramatic fall last year in capital values throughout the commercial property market.

The long running index compiled by agent Jones Lang LaSalle estimated that the fall in overall values was 39.6 per cent – higher than the 37.2 per cent slippage reported last week by the London-based researcher Investment Property Databank. While the figures suggest that the repricing exercise may well be close to completion, trading in commercial property will unfortunately remain at a low level until debt financing has been unlocked. The imminent recapitalisation of the main banks should help to move things forward.

This week’s index shows that almost 16 per cent of the fall in values occurred in Q4 2008 when the global financial crisis worsened and the seriousness of the economic recession hit home.

The biggest losers were owners of retail property who saw capital values fall by an unprecedented 45.1 per cent in the year and by 17.6 per cent in the three months up to the end of December. Capital values in the office sector declined by 36.8 per cent in the year and by 14.5 per cent in Q4.

Industrial buildings fared somewhat better, falling by 28.5 per cent in 2008 and by 16.3 per cent in Q4. The large percentage falls reflect the extremely low yields which applied at the end of 2007.

Because of the collapse in capital values, Jones Lang LaSalle calculated that overall returns from the Irish market fell by 36.4 per cent in the year to last December and by 14.5 per cent in Q4.

However, income growth for the index portfolio remained in positive territory, increasing by 3 per cent in Q4 and by 5.5 per cent in 2008 as a whole. In December last, the overall income yield for the index was 6.3 per cent; the income yields for the individual sectors of office, retail and industrial were 6.3, 5.9 and 7.6 per cent, respectively.

Rental values increased by 1.5 per cent in the year to December last and by 1.7 per cent in Q4 following negative returns of -1.9 per cent in Q3. The retail sector showed growth of 0.2 per cent in the final quarter while office rents were stagnant.

In the year to December 2008, rental value movement was positive for both offices and retail, rising by 1.8 and 12.5 per cent. Industrial rents fell during the year by 0.2 per cent.