Whither values?
Published: 18 February, 2008
Irish Bank shares took a tumble at the end of January after analysts at UBS issued a bearish research note warning of their over-exposure to the commercial property market.
The UBS team, headed by Ross Curran, grabbed the headlines with a warning that Irish commercial property values could fall by as much as 30 per cent. The retail sector was highlighted as a particular area of concern.
However, CBRE's Dublin research team, headed by director Marie Hunt, countered with a research note of their own refuting UBS' conclusions.
Hunt conceded that the commercial property market in Ireland is now showing signs of slowing down relative to the very strong double digit performance witnessed in recent years.
She said: "If the property market cycle in Ireland is to follow the long-term trend, we can expect that total returns in the Irish market will certainly revert to single digits in 2008, as in previous cycles.
"A drop in values of 30 per cent is not on the cards," she asserted, adding: "One has to remember that activity in the commercial occupier markets in Ireland remains strong and prime rents are continuing to appreciate in all sectors, albeit at a slower pace."
CBRE specifically addressed UBS' comments on the retail sector. For many years Hunt and her team have themselves been warning of the potential for oversupply in the Irish retail sector, but they said they believe that the development and lending community are very aware of the threat of oversupply in this sector and have been reacting accordingly.
They acknowledge that consumer spending is likely to decline in Ireland in 2008, on the back of slower economic activity and downturn in the housing sector, but do not believe that the downturn will be of the scale predicted by UBS.
In its annual forecast for the retail sector, CBRE warned of a "more competitive" market in 2008. "The likelihood of strong rental appreciation being achieved in this sector is somewhat more subdued, while landlords will be more inclined to give generous inducements to key tenants to secure lettings," it forecast.
The firm's agency team expects the growing use of turnover rents.
And in these circumstances CBRE is advising developers: "It is now more important than ever that a retail scheme is well anchored and that the design of the scheme and the tenant mix is appropriate for the target market."
CBRE said it was confident that consumer spending would be strong in 2008, but that there would always be the likelihood of new malls gaining share "at the expense of older facilities as competition intensifies."
