Doubt at home and abroad has seen Irish returns fall back into negative territory in Q2, at -3.0%, their lowest rate since September 2009, according to the SCSI/IPD Ireland Quarterly Property Index.
"Fears of contagion from the continuing euro zone crisis have been allayed in the last few days, at least for the moment, but that was too late to influence property returns in Q2.
"And those concerns are arguably still of lesser importance than the imminent announcement from the Irish government regarding retrospective rent reviews" said Malcolm Hunt, Director of UK and Ireland Client Services at IPD.
While there are arguments both for and against the controversial policy, research conducted by IPD has found that the retrospective abolition of upward only rent reviews could potentially wipe 79 million from income immediately. The impact on Irish commercial property could be severe, seeing values fall by a possible 20%."
The uncertainty surrounding the government's rent review policy has seen capital values fall a further -5.3% in Q2 2011, again, the sharpest decline since the nadir of the market downturn. Cumulatively values have now fallen -63%. Current income returns remained steady, at a 'healthy' 2.4% for the quarter.
Rental values in the index continued to step down, recording declines of -5.5% in the quarter, taking the cumulative rental value falls since December 2008 to -43%.
There was little distinction in performance at the sector level. Industrials saw the worst fall in value, of -5.6%, while offices and retails recorded -5.3% and -5.1% respectively. Rental value declines were sharpest in the office sector, which fell -5.8%, despite recent reports of improvement in Dublin office take up.
Hunt continued, "While a government announcement regarding rent review policy is expected any day now, the uncertainty in the market is having a dire effect. Speculation about the effects of such a policy, amid continuing chaos in the euro zone, is clearly still impacting on commercial property performance.
"Values in Ireland are therefore suffering from declining occupier demand and extremely nervous investor sentiment. As a consequence, transactional activity has remained almost non-existent.
"On the sidelines, NAMA will be watching the situation with trepidation, well aware that the majority of its distressed property loan book may now have lost another -5% of its value, and that if the retrospective rent reviews are implemented, it could lose a further 20%."
Dr Peter Stafford, Director of Policy and Public Affairs at The Society of Chartered Surveyors Ireland, said: "The ongoing declines in the Irish commercial property market highlighted both by SCSI/IPD data and the Society's own surveys of chartered surveyors working in commercial agency shows the extent to which the market reflects the ongoing lack of confidence in the economy, the weakness of the financial sector and the uncertainty about rent review clause legislation.
"While agents are reporting an increase in enquiries, the ongoing inability to secure finance is preventing them from becoming actual transactions. In the absence of any decision by the Minister for Justice regarding rent reviews, international investors remain notably absent in the current market."