CBRE Research Bi-Monthly Report – The Irish Investment Market

CBRE Research Bi-Monthly Report – The Irish Investment Market

Uncertainty about the controversial proposed review of upward only rent review provisions in business leases has now dragged on for almost a full year.

It is frustrating that this issue has effectively stalled transactional activity since the beginning of 2011 at the very time that international investor appetite for prime investment assets had begun to materialise.

The lack of clarity around this particular issue has also impacted on the performance of the investment sector in 2011. This is evidenced by the most recent data from the Investment Property Databank (IPD) for Q3 2011, which confirmed that Irish capital values declined by a further 4.6% in the three month period to the end of September, representing an almost 65% decline from peak.

There have been only four investment transactions of note signed in the Irish market to date in 2011. The only investment transaction completed recently was the sale of a retail park in Limerick for approximately €30 million. Although there has been a dearth of prime investment properties being offered for sale, a number of attractive investment properties have officially come to the market in recent weeks, including the Riverside II office building in Dublin Docklands; the Plaza 4 building at Custom House Plaza in the IFSC and the One Warrington Place office building in Dublin 2, all of which are generating a lot of international appetite.

These sales will be important barometers for the investment sector, creating the transactional evidence necessary to accurately determine current pricing and yield levels if they are sold. Without meaningful transactional evidence, our prime yield series can only represent a synthetic indication of what an investor would be likely to pay at this juncture for a prime asset let at an open market rent.

The fact that NAMA have recently announced plans to provide staple financing to facilitate some commercial property purchases is encouraging as is the news that the Government are possibly considering reducing the rate of stamp duty on commercial property in the forthcoming Budget. Both of these measures, while unlikely to significantly stimulate transactional activity in their own right, will certainly help to facilitate transactions.

To date, NAMA’s approach has been to sell assets and be repaid on a ‘borrower by borrower’ or ‘loan by loan’ basis but they have now announced their intention to package up loans for sale as portfolios, which would appear to be a more sensible solution.

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