Values are down 48 per cent in the last 15 months but, as the rate of slippage slows, the worst may now be behind us, writes JACK FAGAN

THE READJUSTMENT of values in the Irish commercial property market is continuing with the latest property index showing that capital values fell by a further 10.9 per cent in the first three months of this year.

The slippage is considerably less than the 18 per cent fall recorded in the fourth quarter of 2008 but, when added to last year’s overall figure, it means that values are now back a full 48 per cent over 15 months.

The London-based researcher Investment Property Databank (IPD) reports that overall returns for the three months to March were also in negative territory at –9.3 per cent but, here again, there was an improvement on the –16.8 per cent recorded in the previous quarter. The fact that income returns also edged up 1.7 per cent may suggest that the worst is now behind us.

The retail sector led the way with a total return of –9 per cent while the industrial and office sectors returned –9.3 per cent and –9.6 per cent.

A second index from Jones Lang LaSalle, also released yesterday, estimated that capital values fell by –10.6 per cent in Q1 of this year and by –43.9 per cent in the year to March. The fall-off in values over the most recent quarter is less severe than in the two previous quarters and, like the IPD study, suggests that the drop in capital values arising out of yield shifts is starting to moderate.

The Jones Lang index shows that, of the three property sectors, retail capital values were the least affected in the most recent quarter – they dropped by –9.9 per cent – but had the steepest capital value decline in the year to March of –48.4 per cent. In Q1 2009 capital values for Irish offices fell by –10.7 per cent and by –41.5 per cent in the year to March. Industrial properties dropped by –35.9 per cent in the year to March and by –12.5 in Q1 2009.

Overall returns in the Jones Lang index were –8.9 in Q1 and –40.5 per cent in the year to March.

While the various researchers interpret the repricing of investment properties in the wake of the banking crisis, the market remains in the doldrums because of the absence of liquidity. Owners with a good rental income are determined to sit out the crisis even with increasing pressure from tenants for rental discounts.

Institutional owners are the only ones putting properties on the market, largely because of demands by individuals to redeem their investments in unit linked funds. Several of the portfolios on the market have been available since the final months of 2008 and, with few buyers around, yields are gradually moving out in the hope of attracting a purchaser.

Aviva Hibernian was the first institution to grab the bull by the horns by dropping the asking price for two office blocks at the AIB Bankcentre in Ballsbridge to €50 million – €40 million less than it paid for them in April 2006. At the new valuation level, investors could expect to get a return of 7.15 per cent. It seems only a matter of time before some of the other funds under pressure to liquidate investments will adopt a similar approach.