Capital values in the Irish commercial property market are still slipping and have now fallen by 64.2 per cent since the peak in September, 2007. The Irish Property Index, published today by Jones Lang LaSalle (JLL), shows that capital values fell by 4.2 per cent in the three months up to the end of September and by 11.5 per cent in the first three quarters of 2011.
The size of the slippage this year may be due in part to the Government threat to introduce legislation abolishing upwards-only rent reviews in existing leases.
Hannah Dwyer, researcher with JLL, says activity in the investment sector has virtually ceased, as the market awaits clarity on the upwards-only reviews which have the potential to impact negatively on properties with older leases. Apart from the decline in capital values, the JLL index also showed that overall returns fell during Q3 by 1.9 per cent, keeping the year-on-year performance into negative territory of -5 per cent. The one positive sign is that all the indices are falling at a lower pace than in the previous quarter with overall returns at -1.9 per cent compared to -3.4 per cent in Q2.
The industrial sector continued to experience the sharpest decline in capital values, falling by 4.6 per cent in Q3 and 18.7 per cent year-on-year. Capital values in the retail sector were down by 4.3 per cent in Q3 and by 13.3 per cent in the last 12 months. Offices also dropped with a 4.1 per cent decline in Q3 and 13 per cent in the year to the end of September. “Despite the industrial values falling at greater levels than other sectors, this quarter shows a narrowing across the board with all three sectors falling at a rate between 4.1 and 4.6 per cent, a range of only 0.5 per cent, compared to a range of 2.5 per cent in Q2,” according to Dwyer.
The index also showed that rental values across the portfolio fell by 2.3 per cent in Q3, significantly lower than in Q2 when the figure was -4.6 per cent. JLL says the fall in rents reflects the continuing pressure on occupational markets and the attractive lease incentives being offered to tenants. Rental values in the retail sector were hardest hit in Q3, falling by 3 per cent. However on a year-on-year basis office rents have slipped by an even higher margin of 15.2 per cent.
JLL also reported that net income increased by 1.1 per cent in Q3 – the first positive news on this front since Q2 in 2010. Although there is still a yearly fall of 7.9 per cent, the figure is lower than in the year-on-year result for the two previous quarters: -10.2 per cent in Q1 and -12.9 per cent in Q2
