Challenging times ahead for the Irish property market (IE)

Property consultant CB Richard Ellis has launched its annual Outlook report - a comprehensive research document outlining predictions for all sectors of the Irish property market in 2009. The report examines the potential for performance in each sector of the commercial property market in Ireland as well as commenting on the prospects for the UK investment market over the next 12 months.

The report is understandably negative about prospects in many sectors of the Irish property market, stating that the commercial property market will find 2009 very challenging in the aftermath of last year's severe and unprecedented downturn. In fact, the property consultants say that with sentiment and economic conditions weak and bank funding severely restricted, it will likely be 2010 before conditions in the Irish property market improve to any significant degree.

The investment market was one that was very severely impacted in 2008, with less than €500 million invested domestically compared to some €1.9 billion in 2007. Although it is hoped that liquidity will improve over the coming months, CB Richard Ellis nonetheless expect conditions in the Irish investment market to remain challenging in 2009. With many investors and developers under financial pressure, there may be an increase in distressed sales this year although CBRE acknowledge that it is impossible to say if this will result in prime investment properties being offered for sale. Nevertheless, they say that there are likely to be some excellent buying opportunities (both on and off-market) for those in a position to purchase.

However, according to Marie Hunt, Director of Research at CB Richard Ellis: "Investors remain cautious and will be unwilling to purchase properties until such time as they believe that values have bottomed out. In the interim, capital values will remain under pressure and will not be helped by the fact that there is little prospect of rental growth in any of the occupier markets in the short to medium term. In the absence of transactional evidence, it is difficult for many vendors to accept the degree to which commercial property values have deteriorated from their peak. However, vendors will have to be very realistic on pricing to secure sales in the current environment. Assuming an improvement in liquidity, we expect to see somewhere between €500 million and €750 million invested in Ireland in 2009. Buyers in 2009 will be buying on the basis of passing rents and not reversionary prospects".

CB Richard Ellis believes the UK investment market was the first property market in Europe to see a significant fall-off in values and is therefore likely to be the first to stabilize, albeit values are likely to overshoot before stabilising as in all other cycles.

According to the new report, the development land sector fared worst in the downturn that characterized the commercial property market in Ireland in 2008. Stagnation in the housing market coupled with severe liquidity problems in the financial markets led to very significant declines in land values across the country. CB Richard Ellis says that there is little transactional evidence to quantify the extent of the fall in land values. However, they believe that on average, the value of prime development sites in Dublin fell by at least 40% during 2008, while much more dramatic declines were witnessed in secondary sites and provincial land banks. Assuming there is finance available to support buyers, there will be transactions concluded during 2009 but at drastically reduced values from the market peak.

Considering the underlying economic situation and the fact that demand in the occupier markets continues to deteriorate, CBRE expects the appetite for development land to remain extremely weak in 2009. It says that a lack of cash-flow is seriously affecting most developers in the current climate and that there is likely to be a notable increase in the number of distressed sales in this sector over the course of the next 12 months. This will undoubtedly present some excellent

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