THE commercial property market shows little risk off overheating this year, but, prices will taper off towards the end of 1996 as demand and supply reach a better balance, a new report has predicted.
The report, compiled by Sherry FitzGerald, says there is no reason why the current positive trend should not continue. Rents and capital values should increase.
James Meagher, director off Sherry FitzGerald, says much of the rise in values to date has merely been a catch-up following the Gulf war and currency crises.
The report shows all sectors of the market are continuing to perform well with demand strong. Development in the commercial sector is primarily a reaction to occupier requirements, it says.
The report, which takes stock of 1995 and reviews the first quarter of 1996, says there has been a continuing high level of activity in the investment market. As with last year, the main limiting factor is the shortage of product, with few sellers and intense competition for properties.
Mr Meagher says that despite the level of unsatisfied demand, there is no sign of investors becoming reckless or significantly downgrading their investment standards.
Total sales of investment properties worth more than £1 million each will exceed £45 million in the first quarter. By the end of the second quarter, this figure will reach £100 million, corresponding with 1994 and 1995 levels, says Mr Meagher.
Major sales this year include Grattan House, Lower Mount Street, Dublin 2, which sold for £3.5 million, Roches Stores, The Square, Tallaght (£6.7 million), and 46/49 Upper O'Connell Street, Dublin, which made £4.6 million.
"Although demand for investment property continues to be led by retail, yields - particularly in prime areas - may now have bottomed out," he says. He believes there may still be scope for yield reduction in the ease of office and industrial property, with a further reduction of up to 0.5 per cent in the prime yield.
The prime yields in each market sector are: retail 5-5.25 per cent; office 6.5 per cent; and industrial 8.25-8.75 per cent.
Strong demand in the retail sector is being fuelled by UK groups either establishing or expanding their presence here. This has led to increasing rental levels and capital values "despite the fact that the volume of retail sales increased in the year to November 1995 by only 3.9 per cent and over the past five years by only 14.1 per cent in total".
It says, not surprisingly, the highest value centres are the largest and busiest ones are St Stephen's Green, ILAC and The Square in Tallaght. The Jervis shopping centre, Jervis Street although not yet open, joins the top end of the band. The report says the figure for the Jervis centre may be somewhat biased by the fact that it enjoys designated status like The Square.
Zone A rents - front of shop space - in Jervis, ILAC and Stephen's Green is, on average, £100 per square foot or more. Zone A space in The Square is £70-£100 on average.
The office market's performance has been remarkably good according to Sherry Fitzgerald. Take-up has been approximately 500,000 square foot. "However, the impact of newly-constructed and occupied offices, together with accommodation brought to the market in the first quarter (total 414,000 square feet) was such that the total available accommodation fell by only 91,000 square feet to 785,000 square feet," the report says, representing a vacancy rate of 5.86 per cent.
The industrial market is also performing strongly. Newly constructed buildings in prime locations are now achieving rents in excess of £6 per square foot and capital values of up to £60 per square foot, depending on specification.
"There is greater demand to purchase rather than rent older space due to the lower interest rates and increased availability of finance," says Mr Meagher. "As a result, values of 15 to 20-year-old buildings over the past year have risen from £23 per square to £32 per square foot."
Prime industrial development sites are making about £180,000-£200,000 per acre, according to the report. The higher values are being achieved for sites with motorway frontage and good access to arterial transport routes. "Secondary land values are in the order of £90,000-£150,000 per acre.
"The availability of services is still a major problem, particularly on the north side of the city, where bio-cycle treatment is the norm rather than the exception and this restricts density and use," the report says.
The demand for new industrial units, particularly in the 40,000-80,000-square-foot range, has stimulated a number of speculative developments, it says.
The first quarter has seen a short supply of pubs for sale, according to the report. "The underlying factors of a buoyant economy - lower interest rates and the availability of finance - continued to increase the pent-up demand for premises."
Recently, Fagan's pub, Drumcondra, Dublin 9, was sold for £2.2 million . "These exceptional prices for trading premises are likely to entice publicans to offer their properties to the market over the next year," it says. It predicts that with the increasing numbers of potential purchasers, this year should be an exciting one for pub sales.
This year, residential developers have expanded further into the Dublin's western suburbs and border counties. Several of the larger transactions have taken place in these areas, including the sale of 16.5 acres at Willsbrook, Lucan, which sold for £2.76 million (£167,000 per acre).
The report says demand continues to outstrip supply and developers who previously were only prepared to acquire large tracts of land are now prepared to consider small infill schemes, as the availability of serviced sites diminishes.
It says concerns over the level of development in the inner city have proved unfounded and there is still a strong demand for sites in good locations, particularly in designated areas. "There is no evident contraction in the inner city market, rather a lack of availability of suitable residential development sites," it concludes.
