IPD: Irish property market completes three-year write-downs (IE)

Irish commercial property values fell by -2.6% over the third quarter, extending the peak-to-trough decline to -59% over three years, according to the SCS/ IPD Ireland Quarterly Property Index.

Irish commercial property market performance

Source: SCS/ IPD Ireland Quarterly Property Index.

The capital depreciation, combined with a 2.3% income return, contributed to a third quarter total return of -0.3%.

The third quarter depreciation in capital values represents an improvement on the -3.5% capital decline over the three months to June. This was the result of two factors: firstly, the softening rental declines, from -7.5% in Q2 to -5.2% in Q3, and secondly due to a modest, but favorable, correction in yields for the first time in three years. Yield impact, which measures the impact of yield movements on capital values, was 1.1% over the third quarter.

Over the full three years since capital values starting falling, equivalent yields increased from 4.0% in Q4 2007 to 8.3% at Q4 2009 before a modest 20 basis points compression to 8.1% by the end of Q3 2010. Rents, which started to decline from Q1 2009, have fallen by -34.2% over seven consecutive quarters to the end of Q3 2010. Over the year-to-date, commercial rents have fallen by 15.2%.

Sasha Thomas, Service Manager for Ireland at IPD, said: "After the rental deterioration over Q2, the Irish market has been braced for further capital write-downs. The picture remains mixed: while rental pressure has eased again and yields have stabilized, uncertainty in the market still lingers given the state of the broader economy."

Peter Stapleton, President of the SCS, added: "Despite the overall falls this quarter, yields of prime, well-let city center properties are stabilizing. We expect that the market will produce more supply of investment property during 2011 which will satisfy some latent demand from cash purchasers that have been holding back for some time. There are also an increasing number of office enquiries in the market at present that will take advantage of the competitive leasing opportunities that have arisen due to falling rents."

Sector and segment analysis
For the second quarter in a row, industrials suffered the steepest sector write-downs, at -4.0%, with a sharp rental decline, at -9.2%, offsetting the 20 basis points yield compression. Industrial equivalent yields ended Q3 at 9.1%.

Capital depreciation in retail and offices both eased in Q3, recording -2.6% and -2.3%, respectively. Rents fell by -3.9% and -5.4% over the quarter, while equivalent yields for the two sectors compressed by 10 basis points to 7.9% and 8.1%, respectively.

Within the major retail and office segments in Q3, Henry and Mary Street saw a capital write-down of -2.8%, while Grafton Street's decline was shallower, at -1.8%. Central Dublin office capital depreciation was half as steep in Q3 than the previous quarter, at -2.0%.

Thomas added: "Over the three-year cycle in Ireland, the steepest value write-downs have come in the major retail districts with Henry/Mary Street declining by -69.1% while Grafton Street has shed -67.5% off peak value.

"The deep -13.4% rental

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