No respite for Irish markets as rental fall steepens: IPD

Accelerated rental falls in Irish commercial property has stifled the market's recovery, driving steeper capital depreciation over the three months to the end of June, at -3.5%, according to the SCS/ IPD Ireland Quarterly Property Index.

The precipitant rental decline - which reflect aggressive tenant bargaining, rising vacancy rates and continued below trend consumer spending - was -7.5% over the quarter and a compounded -30.6% across the entire 18 months rents have been falling. Over the first half of the year, rents have fallen by -10.6%.

But the report says tht this masks a significant spread in rental falls at sector level and within the major segments. At the broader market level, yields finally appear to be stabilising - at an all property level yields have moved by less than 10 basis points over the last 12 months, ending the second quarter at 8.2%. The net effect of falling rents and stabilising yields is a quarterly capital depreciation which is almost twice as Q1 this year.

'The worsening in rents is not a wholly unexpected outcome from Q2 results,' explained Phil Tily, IPD’s newly-appointed managing director for the UK and Ireland. 'All three sectors have been under persistent downward rental pressure for some time. While there are tentative signs of an economic recovery manifesting, the retail sector has been hurt by squeezed disposable income and any recovery in consumer spending will likely take some time to gain traction.

In the office sector, limited expansion of existing businesses together with few new occupiers likely to come to the market in the near term continues to put downward pressure on office rents. Furthermore, tenants have bargained hard to win greater lease flexibility, enhanced by legislation scrapping upward-only rent reviews. 'On a more positive note, yields finally look to have stabilised after a volatile three years, while the supply pipeline across the sectors remains tight which could help create competition for limited stock when a recovery does materialise,' Tilly added.