This year has been a bit of a shock to the system for investors in the commercial property market. Accustomed to double-digit growth for the best part of a decade, they didn't even need to be discerning to do exceptionally well. There are fewer tenants in the market now, the banks are a more reluctant to lend and developers slow to sell. The silver lining, according to some observers, is that this cooling makes for excellent buying opportunities next year. Ronan Webster of Insignia Richard Ellis Gunne believes long -term investors have an opportunity in 2002 to pick up very secure property with an initial return of 6 to 7 per cent.
"There won't be much capital growth for a year or two but the rent will service the debt and when the market does turn the returns will be massive," he predicts.
The consensus seems to be that the suburban office market is out of favour at the moment as there's been far too much development and not enough take-up. On the development land side, vendors are still holding out for high prices but when they adjust their expectations there will be value out there, Mr Webster suggests. "There'll be opportunities there next year, particularly in Dublin city centre, because there's been very little trading this year."
If you had £1 million (€1.27m) to spend, and some people apparently do, Roderick Downer of Collier Jackson Stops would recommend taking a look at a good industrial development. "Take a modern factory, a solid tenant on full repairing and insuring terms and you can't go wrong." "If you think there's going to be rental growth you can accept a yield of 6 per cent. If rent is a little low it's a good thing, it means it can go up. The key thing is the potential rental growth", he said.
The problem encountered by investors in the Republic is that there is a scarcity of quality commercial property. The solution has traditionally been to look across the water, which is offering relatively better value at the moment.
A lot of Irish investors, either on their own or clubbing together with other investors, are looking for individual buildings in Britain. Outside of London, there is value in quality retail properties in the medium sized "cathedral towns", according to Mr Downer.
The deluxe end of the Irish retail market would be a freehold building on Grafton Street in Dublin let to a prime tenant. Mr Downer believes Henry Street will become the main shopping centre of the city and Grafton Street will become more specialised and upmarket.
"The south city centre is strong, it's such a mature city that there is no vacant space in the central business district but there are some projects coming on stream in the Henry Street area," Mr Downer said.
In the last year, vacancy rates have gone up, the tech sector has been hit and some properties lost some of their capital value. Mr Douglas Farrell of National Deposit Brokers believes it is unrealistic to expect anything higher than 6 to 9 per cent in property funds next year. In early September, several property funds introduced a unit price adjustment of up to 12 per cent to act as a deterrent to people getting out of the fund. Some even introduced a six month deferment period to stop new investors leaving the funds.
These measures were in response to a bit of a rush to exit but they have also made the investment less attractive. There is no liquidity in funds of this kind, which are up to 95 per cent invested and fund managers obviously don't want to dump property on the market.
Domestic funds are practically 100 per cent Irish but there are a few separate UK funds, in particular funds from Irish Life and BCP.
Next year, Mr Farrell expects that UK property funds will do better but he's still confident the Irish funds will make 6 to 9 per cent. "If you even made 6 per cent net of charges and tax, that's not a bad bet to make", he said.
