CBRE challenges fears of severe Irish property slump

Property adviser CB Richard Ellis has questioned a report by the Global Equity Research department of UBS, which suggests Irish institutions face a 'significant risk' to earnings as commercial property values in Ireland could potentially fall by as much as 30%.

The claim led to investors dumping shares in financial institutions, wiping EUR 1.2 bn off the value of the four major Irish banks in one day.

In its response, CBRE agreed that commercial property returns in Ireland are likely to decline this year and that yields may come under pressure, but that the extent of decline predicted by UBS is exaggerated.

The property adviser pointed out that the comments made by UBS regarding the risk premium for Irish commercial property focused on property market performance since 2000 only. Sean O'Brien, director of investment at CBRE, said: 'property performance should only be analysed on a long-run basis. When you look at the gap between interest rates and property yields in Ireland, yields have certainly plummeted relative to funding costs in recent years. However, to get a true picture, one should consider longer-term trends, which suggest that there is very little pressure on property yields from funding costs. Therefore, while a price correction may be on the horizon, it is very unlikely to be of the magnitude UBS are suggesting.'

Marie Hunt, director of research at CBRE, agreed that the commercial property market in Ireland is now showing signs of slowing down relative to the very strong double-digit performance witnessed in recent years.

'If the property market cycle in Ireland is to follow the long-term trend, we can expect that total returns in the Irish market will certainly revert to single digits in 2008 as in previous cycles. However, a drop in values of 30% is not on the cards. One has to remember that activity in the commercial occupier markets in Ireland remains strong and prime rents are continuing to appreciate in all sectors, albeit at a slower pace,' she said.

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