Report predicts strong 2007 performance in Irish property market

A new report on the future of the Irish property market has been released today.

Property consultants CB Richard Ellis today released a comprehensive research document entitled

The Outlook 2007 Report, released by Property consultants CB Richard Ellis, examines the potential for performance in each sector of the commercial property market in Ireland as well as commenting on the prospects for the new homes market and overseas investment markets in 2007.

“As we gear up for the year ahead, the prospects for the commercial property market in 2007 look very promising indeed although most people accept that the record levels of property returns achieved in recent years are unlikely to be replicated,” said Marie Hunt, director of research at CB Richard Ellis, Ireland.

“This is true of the Irish market and many other European locations. In the absence of significant yield contraction, the primary driver of returns going forward will be rental growth. Investors who want to generate above-average returns from commercial property, either at home or overseas will have to adopt more pro-active strategies and focus on asset management and redevelopment opportunities.”

According to the company, the domestic occupational property sectors, namely office, industrial, retail and hotels all look likely to perform strongly again this year against a positive economic backdrop and good balance between supply and demand.

According to the report, the Dublin office market is likely to witness take-up of more than 185,000 square metres again this year on the back of strong levels of demand from domestic and overseas occupiers. As a result of the strength of demand for office accommodation, prime rents in core city and docklands locations may well exceed €700 per square metre this year.

The study indicates that rents for office car-parking spaces are also likely to increase significantly over the course of the next 12 months. Against this backdrop, there will be strong demand for office redevelopment opportunities in core locations.

Prospects for the retail sector look promising, although the agents warn that as a result of increasing competition, conducting thorough demographic analysis is now essential to justify retail developments, particularly outside of Dublin. The report predicts the market will perform well this year on the back of strong economic and demographic fundamentals although conditions are now more competitive.

Investment activityis also predicted to continue at pace with record levels of Irish money likely to be directed at property investment opportunities both in Ireland and overseas in the year ahead.

Irish investors spent more than €11bn on commercial property investments in 2006 and CB Richard Ellis expect this record level of spend to be beaten again in 2007.

However, sourcing good quality properties and generating the mid-to-high double-digit returns that Irish investors have become accustomed to is going to be more difficult this year. It is expected that institutions will be active buyers of property this year although private buyers will continue to dominate.

The firm predict that Irish investors will focus on the UK and key cities in Europe including Amsterdam, Brussels, Barcelona, Madrid and Paris while many will continue to seek property investment opportunities in Germany on the back of recovering economic prospects there.

CB Richard Ellis believe that the development land market will continue to perform well this year, although they believe that this market is set to become more diverse with some lending institutions becoming cautious on more opportunistic development opportunities.

The firm expects to see an increase in private equity and mezzanine finance in the development market in 2007. It also expects to see properties such as pubs, hotels and petrol filling stations continuing to come to the market as development sites on the basis of the higher alternative land values that can be achieved.

The agents believe that the new homes sector is likely to witness a slowdown in house price inflation in 2007 and have warned the development community to reduce the quantum of supply of new residential units nationally over the course of the next few years to avoid oversupply.

The market for hotels and pubs will also remain strong, according to the CB Richard Ellis report.

It says that the hotel market in Dublin will be particularly active this year on the back of impressive tourist numbers and that the recent changes in relation to VAT for conference-related accommodation will boost the demand for hotel accommodation this year.

Hotels are increasingly being viewed as property investment opportunities and Irish investors are likely to focus attention on hotel investments both in Ireland and overseas over the course of the next 12 months.

Trading conditions in the pub market will be challenging this year, although CB Richard Ellis say that the pub trade is still a very significant business proposition and that there is likely to be strong demand for well-located pubs in 2007, particularly those that offer alternative use values.

The company do not expect to see any major uplift in the price of pub licenses although there is strong demand from retailer and off-license operators.