Accelerated rental falls in Irish commercial property has stifled the market's recovery, driving steeper capital depreciation over the three months to the end of June, at -3.5%, according to the SCS/ IPD Ireland Quarterly Property Index.
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Source: SCS/ IPD Ireland Quarterly Property Index.
The precipitant rental decline which reflect aggressive tenant bargaining, rising vacancy rates and continued below trend consumer spending was -7.5% over the quarter and a compounded -30.6% across the entire 18 months rents have been falling. Over the first half of the year, rents have fallen by -10.6%.
But this masks a significant spread in rental falls at sector level and within the major segments. See chart for second quarter rental decline by segment.
At the broader market level, yields finally appear to be stabilizing at an all property level yields have moved by less than 10 basis points over the last 12 months, ending the second quarter at 8.2%. The net effect of falling rents and stabilizing yields is a quarterly capital depreciation which is almost twice as Q1 this year.
"The worsening in rents is not a wholly unexpected outcome from Q2 results," explains Phil Tily, IPD's newly-appointed Managing Director for the UK and Ireland.
"All three sectors have been under persistent downward rental pressure for some time.
"While there are tentative signs of an economic recovery manifesting, the retail sector has been hurt by squeezed disposable income any recovery in consumer spending will likely take some time to gain traction.
"In the office sector, limited expansion of existing businesses together with few new occupiers likely to come to the market in the near term continues to put downward pressure on office rents. Furthermore, tenants have bargained hard to win greater lease flexibility enhanced by legislation scrapping upward-only rent reviews.
"On a more positive note, yields finally look to have stabilized after a volatile three years, while the supply pipeline across the sectors remains tight which could help create competition for limited stock when a recovery does materialize."
Segment analysis
Within the main retail and office segments in Q2, the steepest price-adjustment was in Henry and Mary Street, which saw a capital write-down of -7.1%. Elsewhere in the retail sector, Grafton Street capital depreciation was much shallower, at -2.9%. By comparison, the two Dublin office market segments were closer to market trend.
Central Dublin office capital values fell by -3.9%, while the rest of Dublin fell by an additional 10 basis, at -4.0%. Of the two, central Dublin offices continue to see the bigger falls in rental values, down by -7.3% compared with -5.6%.
Phil Tily appointment
Phil Tily has been promoted to UK and Ireland Managing Director completing the senior management restructuring at IPD. Tily will be responsible for all of IPD's UK and Ireland investment services, central to which is the development of the core portfolio analysis services (PAS).
In his role Tily will work closely with Malcolm Hunt, Head of UK and Ireland Client Services, and our dedicated
But this masks a significant spread in rental falls at sector level and within the major segments. See chart for second quarter rental decline by segment.
At the broader market level, yields finally appear to be stabilizing at an all property level yields have moved by less than 10 basis points over the last 12 months, ending the second quarter at 8.2%. The net effect of falling rents and stabilizing yields is a quarterly capital depreciation which is almost twice as Q1 this year.
"The worsening in rents is not a wholly unexpected outcome from Q2 results," explains Phil Tily, IPD's newly-appointed Managing Director for the UK and Ireland.
"All three sectors have been under persistent downward rental pressure for some time.
"While there are tentative signs of an economic recovery manifesting, the retail sector has been hurt by squeezed disposable income any recovery in consumer spending will likely take some time to gain traction.
"In the office sector, limited expansion of existing businesses together with few new occupiers likely to come to the market in the near term continues to put downward pressure on office rents. Furthermore, tenants have bargained hard to win greater lease flexibility enhanced by legislation scrapping upward-only rent reviews.
"On a more positive note, yields finally look to have stabilized after a volatile three years, while the supply pipeline across the sectors remains tight which could help create competition for limited stock when a recovery does materialize."
Segment analysis
Within the main retail and office segments in Q2, the steepest price-adjustment was in Henry and Mary Street, which saw a capital write-down of -7.1%. Elsewhere in the retail sector, Grafton Street capital depreciation was much shallower, at -2.9%. By comparison, the two Dublin office market segments were closer to market trend.
Central Dublin office capital values fell by -3.9%, while the rest of Dublin fell by an additional 10 basis, at -4.0%. Of the two, central Dublin offices continue to see the bigger falls in rental values, down by -7.3% compared with -5.6%.
Phil Tily appointment
Phil Tily has been promoted to UK and Ireland Managing Director completing the senior management restructuring at IPD. Tily will be responsible for all of IPD's UK and Ireland investment services, central to which is the development of the core portfolio analysis services (PAS).
In his role Tily will work closely with Malcolm Hunt, Head of UK and Ireland Client Services, and our dedicated
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