Government action key to Irish commercial property sector

The ongoing eurozone crisis and market volatility will continue to dominate the Irish commercial property market over the next 12 months but local economic, financial and political decisions will be the main drivers of pricing and transaction volumes, according to a new report by CBRE.

‘The commercial property market should stabilise in 2012 and begin to emerge from the most significant correction it has ever experienced,’ said Marie Hunt, executive director at CBRE, Ireland, and author of the report. ‘We expect to see a notable increase in transaction volumes in all sectors of the market in 2012.’

However, values will only stabilise once there have been sufficient transactions to be able to get a good overview of pricing developments, she said. ‘The real estate sector now has to adapt to a scenario where debt funding is going to remain severely constrained.'

In particular, CBRE says that while rent for prime buildings will eventually stabilise, rents for secondary properties will continue to decline as occupiers try to negotiate favourable terms and conditions in an oversupplied market.

At the same time, overall levels of take-up in the offices, retail and industrial sectors are likely to decline because of the economic uncertainty. ‘In the office sector the threat of the implementation of a financial services transaction tax across the EU is worrying, particularly if this tax is not payable in the UK,’ Hunt notes. In addition, the government’s decision not to proceed with retrospective lease reform will also cause some retailers to re-assess their options, she said.

Another problem that will become ‘increasingly obvious’ this year is the growing prevalence of offices and other commercial property which is becoming increasingly unfit for purpose. Without action, eventually this property will fail to meet health and safety and other government directives, Hunt warns.