Market near bottom after three years

THE IRISH commercial property market is finally showing signs of bottoming out after three disastrous years.

Overall returns for 2010 published yesterday by Jones Lang LaSalle in its long-running Irish Property Index recorded a fall of 1.6 per cent – a vast improvement on the drop of 19.2 per cent recorded in 2009.

Margaret Fleming, director of investments in Jones Lang LaSalle, said that while capital values and rents for offices, retail and industrial sectors continued to fall in the final three months of 2010, the pace of decline continued to slow which may indicate market stabilisation and a positive sign for commercial property.

Capital values in Ireland have now fallen by 60 per cent since the market peaked in the third quarter of 2007. Ms Fleming said that the “rate of value decline appears to be reaching the bottom and stabilising”. Property as an investment class continues to generate strong income returns with the income yield recorded by the index in the final quarter of 2010 being 8.67 per cent.

The capital value of commercial property fell by 10.5 per cent last year and by 3 per cent in the three months up to last December. The industrial sector continues to experience the sharpest decline, falling by 6.7 per cent in Q4 and by 16.4 per cent in the year to December. Capital value for offices fell by 1.8 per cent in Q4 and by 10.8 per cent over the year. Retail capital values dropped by 3.7 per cent in Q4 and 8.6 per cent in the year to December.

Rental values across the entire index portfolio fell by 24.3 per cent in 2010, reflecting the continuing pressure on occupational markets. Rental values for the industrial sector were hardest hit, falling by 10.8 per cent in Q4 and and by 37.4 per cent in the year to December. Office rents dropped by 3.6 per cent in Q4 and and by 23.5 per cent during 2010. Retail rental values were down 6.8 per cent in Q4 and by 21.4 per cent in the year to December.

The Jones Lang LaSalle index also showed that income levels came under pressure during the past 12 months with a yearly slippage of 7.3 per cent and a quarterly decrease of 1.8 per cent in the last quarter. The agency said that this was a direct result of tenants coming under financial distress and resulting property vacancies combined with some landlord incentives in the form of rental abatements, reductions and rentfree periods.