Irish Property Market: June 2008

In line with most other property markets across Europe, current conditions in the Irish market remain challenging. Sentiment has deteriorated and there has been little transactional activity owing to both increased costs and lack of bank funding. On a positive note occupier demand has remained reasonably strong especially for property in prime locations. With occupiers continuing to take space and moderation in speculative development, there is a good prospect of the market avoiding a situation of significant oversupply.

Office Sector
Despite the current market conditions, the Dublin office sector performed well in the first six months of 2008 with almost 80,000 square metres of lettings signed.
Generally, transactions are taking longer to complete with greater incentives being negotiated by occupiers. Prime headline office rents in the city centre remain at approximately €670 per square metre. A number of large space enquiries from financial institutions and professional practices who commenced their searches in 2007, remain active and have yet to be fulfilled. Prime office yields are in the order of 4 to 4.5 per cent. (Source: CB Richard Ellis Research).

Retail Market
The Central Statistics Office (‘CSO’) reported that the volume of retail sales in Ireland fell by 3.2 per cent in the year to June 2008. This has had an impact on the retail market generally. Enquiries are still active and transactions are being negotiated, however lease incentives and inducements are becoming more common. National and international retailers continue to seek opportunities in the prime locations which are proving difficult to satisfy.

Industrial Market
There remains steady underlying demand for good industrial properties in prime locations driven by convenient access to motorway and port routes. The industrial
market has the ability to react quickly to enquiries generally due to the speed at which buildings can be developed. As credit conditions become tighter there has been an increase in letting activity by occupiers who previously would have preferred to buy their premises. Prime rents remain stable at approximately €130 per square metre (Source: CB Richard Ellis Research).

Residential Market
The stock overhang that built up towards the end of the recent building boom continues to put downward pressure on house prices and on residential construction activity levels. In the five year period to 2007, completions averaged just under 80,000 units per annum. On the basis of the trends in registrations and commencements, it is anticipated that the level of completions will fall to approximately 47,500 in 2008 and 33,000 in 2009. The reduction in output should help the market move towards equilibrium. Consumer confidence has been slow to return to the market with the marginal purchaser continuing to remain in the rental market and developers with unsold properties also putting this stock into the rental market (Source: AIB Economic Research).

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