IRELAND IS DEVELOPING a reputation internationally as a difficult place to invest in the commercial property market, according to estate agents Lisney. The observation, which is likely to be endorsed by other Irish agents, comes at a time when the investment sector has virtually stalled because of the planned Government intervention in retrospective rent review procedures.
Lisney said the Government needed to set out the new arrangements on how rents on existing leases would be determined in the future in order to remove the current uncertainty.
The delay was causing difficulties on many fronts. The tenant lobby which had been calling for help with historical rents continued to struggle with more retail businesses failing.
On the other side of the debate, landlords and their banks were unable to sell assets which might otherwise be disposed of. The lack of activity was damaging the Government finances through limited stamp duty and VAT receipts that normally arose from investment sales. In addition, the uncertainty it created was having a negative effect on capital values which were down by about 10 per cent since the proposal was first mentioned.
Lisney said it was hoped that matters would be clarified shortly, allowing tenants, building owners, banks and prospective buyers to operate with some certainty and investors to price income producing assets. Due to the lack of clarity, buyers were afraid to pay for income that could be undermined if the Government proceeded in line with the Programme for Government. Conversely, long-term property investors were holding tightly to their existing assets as they could not replace them with similar or better-quality investments due to the current legislation.
The estate agency said that with IPD recording values down 63.25 per cent since 2007, “the correction may have overshot”. Firstly letting markets had performed quite well in the past 12 months with vacancies reducing, particularly in the Grade A Dublin city centre office market.
While rental growth was still some way off, there were indications that some balance was returning to prime markets. In more normal times, investors would move to position themselves to capitalise on the improving occupational markets.
Secondly, the interest rate outlook looked increasingly benign in the medium-term, something which should encourage investors to take the strong income returns available.
Thirdly, the chaos in equity markets typically saw investors consider property as a stable safe haven.
Not surprisingly, Lisney
reports that debt remains difficult to secure and says it is only available at very conservative gearing levels on what could be described as “very onerous amortisation arrangements for investors”.
The agents says it is probable that €200 million of investment turnover would be achieved this year. The current levels of turnover could be doubled in 12 months, but only once the rent review issues were clarified.
