More prop­erty ex­perts say val­ues ap­proach­ing peak

Irish Independent - Business Week - - COMMERCIAL PROPERTY - Donal Buck­ley

A GROW­ING mi­nor­ity of prop­erty ex­perts con­sider that the Ir­ish com­mer­cial prop­erty market may be close to peak­ing, al­though a sub­stan­tial ma­jor­ity still be­lieve that com­mer­cial real estate to be at or be­low fair value.

Th­ese are among the lat­est find­ings from the third quar­ter ‘Ire­land Com­mer­cial Prop­erty Mon­i­tor’ com­piled by the So­ci­ety of Char­tered Sur­vey­ors Ire­land (SCSI) in con­junc­tion with the Royal In­sti­tute of Char­tered Sur­vey­ors.

In Dublin, the per­cent­age of re­spon­dents who feel the peak may be near has dou­bled from 14pc in the sec­ond quar­ter of the year to 28pc in the lat­est sur­vey. A ma­jor­ity of about 70pc view the market as in the mid up­turn phase.

Na­tion­ally, 16pc of re­spon­dents feel the market may be close to peak­ing which is also up from only 6pc in quar­ter two. How­ever, the na­tional sur­vey also showed that lit­tle more than half of re­spon­dents, 54pc, sense that con­di­tions are con­sis­tent with the mid­dle stages of an up­turn.

In an in­ter­na­tional con­text Dublin was one of 12 cities where some prop­erty pro­fes­sion­als ap­peared to be flash­ing the am­ber lights. In­deed this group were in the ma­jor­ity in seven global cities, in­clud­ing Ber­lin, Frank­furt and Paris. In con­trast, much fewer sur­vey­ors in Lon­don felt so cau­tious.

A sub­stan­tial 74pc of Ir­ish re­spon­dents still view com­mer­cial real estate in Ire­land to be at or be­low fair value. This Ir­ish view led to Ire­land’s market ef­fec­tively be­ing ranked tenth best value of the 32 coun­tries sur­veyed.

Sur­vey­ors in Bri­tain, Italy and Rus­sia were among only nine coun­tries to con­sider their na­tional mar­kets to be bet­ter value.

Partly re­flect­ing the con­cerns about the market peak­ing, as many as 26pc of Ir­ish re­spon­dents con­sid­ered the market as ex­pen­sive, an in­crease from the 16pc who felt that way dur­ing the pre­vi­ous quar­ter.

SCSI’s over­all Ir­ish In­vest­ment Sen­ti­ment In­dex reg­is­tered a value of plus 29 in Q3, more or less un­changed from the plus 27 pre­vi­ously, and sim­i­lar to all read­ings posted since Q2 2016.

“As such, this points to in­vest­ment market con­di­tions con­tin­u­ing to im­prove at a smart quar­terly pace,” SCSI says.

Ir­ish in­vest­ment enquiries are re­ported to have picked up within each sec­tor, with a head­line net bal­ance of 29pc of re­spon­dents cit­ing an in­crease. De­mand from for­eign buy­ers edged up, al­though growth in the re­tail sec­tor was only mar­ginal.

Sup­ply of prop­erty for in­vest­ment pur­poses crept lower in Q3, with all sec­tors of the Ir­ish market see­ing a mod­est de­cline.

Re­spon­dents were also in­di­cat­ing that they were com­fort­ably pos­i­tive about the prospects for cap­i­tal val­ues in each sub-sec­tor of the Ir­ish market dur­ing the next 12 months. In­deed, so pos­i­tive are ex­pec­ta­tions of Ir­ish sur­vey­ors in terms of in­creases in both rents and cap­i­tal val­ues of prop­er­ties, that they are ranked third strong­est be­hind only those in Ber­lin and Bu­dapest and well ahead of those in Lon­don and Paris. In con­trast, New York and Sin­ga­pore gen­er­ated neg­a­tive scores in this part of the barom­e­ter.

The RICS re­searchers re­marked of the global market that “strong in­vest­ment de­mand growth is out­strip­ping that of sup­ply in net bal­ance terms, pro­duc­ing firmly pos­i­tive cap­i­tal value ex­pec­ta­tions in Bu­dapest, Dublin, Lis­bon, Ban­ga­lore and Sofia. By way of con­trast, the back­drop re­mains chal­leng­ing in Dubai, with re­spon­dents sub­mit­ting neg­a­tive pro­jec­tions for both cap­i­tal val­ues and rents for the year ahead.”

Ir­ish prime in­dus­trial and of­fice as­sets are ex­pected to see the strong­est growth in the value of prop­er­ties over the next 12 months. In Dublin, it is mainly the in­dus­trial sec­tor which is ex­pected to out­per­form the na­tional av­er­age in terms of cap­i­tal value growth over the year ahead.

When it comes to rents, sur­vey­ors an­tic­i­pate Ir­ish rents to rise firmly in each market seg­ment over the year ahead, al­beit pro­jec­tions are a lit­tle more mod­est for sec­ondary re­tail space.

In­deed views of the let­tings market were con­sid­ered more up­beat in the third quar­ter of the year af­ter a dip in sen­ti­ment in the sec­ond quar­ter.

The SCSI Oc­cu­pier Sen­ti­ment In­dex, a com­pos­ite mea­sure cap­tur­ing over­all mo­men­tum, im­proved to plus 35, fol­low­ing a dip to plus 25 in the sec­ond quar­ter. This is broadly in line with the av­er­age read­ing over the past four quar­ters and con­tin­ues to sig­nal solid mo­men­tum.

Tenant de­mand grew firmly in both the Ir­ish of­fice and in­dus­trial sec­tors dur­ing Q3, while de­mand for re­tail space in­creased more mod­estly by com­par­i­son.

Fol­low­ing a broadly-flat out­turn in Q2, avail­abil­ity edged down at the head­line level, al­though there was a small rise re­ported within the of­fice sec­tor. Along­side this, land­lords re­duced the value of in­cen­tive pack­ages, such as rent-free pe­ri­ods in each area of the market, which un­der­lines the trend to­wards tighter terms for ten­ants.

Over the next 12 months, re­spon­dents en­vis­age strong rental growth across all prime mar­kets, with in­dus­trial sec­tor rents an­tic­i­pated to post the sharpest gains. The out­look is also solid across sec­ondary lo­ca­tions, as re­spon­dents re­vised up­wards their ex­pec­ta­tions across each sub-sec­tor rel­a­tive to Q2.

In Dublin, both prime and sec­ondary in­dus­trial rents, along with sec­ondary of­fice rents, are ex­pected to post stronger gains than the na­tional av­er­age. Aside from th­ese sub­sec­tors, rental growth pro­jec­tions across the cap­i­tal are broadly aligned with the Ire­land-wide fig­ures.

The ma­jor­ity of con­trib­u­tors re­ported a slight im­prove­ment in credit con­di­tions dur­ing Q3, ex­tend­ing a run of con­tin­u­ous im­prove­ments go­ing back to the start of th­ese sur­veys in 2014.

The RICS Global Com­mer­cial Prop­erty Mon­i­tor re­sults show a con­tin­ued, steady im­prove­ment in sen­ti­ment across the ma­jor­ity of mar­kets cov­ered by the sur­vey dur­ing Q3.

Over­all, mo­men­tum re­mains pos­i­tive, both on the oc­cu­pier and in­vestor sides, in around two thirds of the coun­tries tracked. Fur­ther­more, al­though re­spon­dents re­main cau­tious on the out­look in some ar­eas, th­ese neg­a­tive trends have di­min­ished to a cer­tain ex­tent when com­pared with ear­lier in the year.

In fur­ther ev­i­dence of an in­creas­ingly wide­spread up­swing in Europe, sen­ti­ment has now turned com­fort­ably pos­i­tive in Greece, where the re­vival in oc­cu­pier de­mand has ac­cel­er­ated over the past two quar­ters, push­ing near term rent ex­pec­ta­tions pos­i­tive in all sec­tors.

With more prop­erty ex­perts be­liev­ing that val­ues are close to peak­ing, Ir­ish Life would seem to have timed its de­liv­ery of 1GQ at Ge­orge’s Quay in Dublin well

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