IRELAND - The commercial real estate market in Ireland continued to see declines in capital values in the third quarter, meaning the market has been falling for more than three years, according to Investment Property Databank (IPD).
The SCS/IPD Ireland Quarterly Property index showed Irish commercial property values fell by 2.6% over the third quarter, extending the peak-to-trough decline to 59% since the second half of 2007.
An income return of 2.3% over the same period was not enough to prevent a negative total return of 0.3%.
That said, the capital declines for the third quarter were an improvement on the drop in the second quarter of 3.5%, suggesting the market correction was beginning to stabilise.
IPD said this slowdown in capital-value falls was down to two factors: slowing rental declines, which fell by 5.2% in the third quarter compared with a drop of7.2% in the second, and a modest correction in yields for the first time in three years.
Yield impact, which measures yield movements on capital values, was 1.1% over the third quarter.
Over the full three years since capital values starting falling, equivalent yields increased from 4% in Q4 2007 to 8.3% at Q4 2009, before a modest 20 basis point compression to 8.1% by the end of Q3 2010.
Rents, which started to decline from Q1 2009, have fallen by 34.2% over seven consecutive quarters to the end of Q3 2010. Year to date, commercial rents have fallen by 15.2%.
Sasha Thomas, service manager for Ireland at IPD, said: "After the rental deterioration over Q2, the Irish market has been braced for further capital write-downs.
"The picture remains mixed - while rental pressure has eased again and yields have stabilised, uncertainty in the market still lingers given the state of the broader economy."
The steepest value write-downs came in the major retail districts. Dublin's principal shopping locations Henry/Mary Street and Grafton Street have fallen by 69.1% and 67.5%, respectively, since their peak values.
Thomas said: "The deep 13.4% rental falls in Henry/Mary Street over the second quarter have given way to a much more muted 1.5% decline - shallower than the -5.2% all property average rental fall."
Peter Stapleton, president of Ireland's Society of Chartered Surveyors, which works with
IPD to produce the country index, said yields of prime, well-let city centre properties were stabilising despite the overall falls in the index.
"We expect the market will produce more supply of investment property during 2011, which will satisfy some latent demand from cash purchasers that have been holding back for some time," he said.
"There are also an increasing number of office enquiries in the market at present that will take advantage of the competitive leasing opportunities that have arisen due to falling rents."