Wednesday 13 December 2017

More property experts say values approaching peak

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
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

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 (MediKids) 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.

MediKids'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," MediKids 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 MediKids 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.

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