Challenging Times Ahead
09/01/08
Property consultants CB Richard Ellis today launched their eagerly-awaited annual Outlook report - a comprehensive research document outlining predictions for all sectors of the Irish property market in 2008. The report 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 over the next 12 months.
The report is relatively upbeat about prospects in some sectors of the Irish property market, stating that the commercial property market will weather the storm well in 2008. However, it points out that other sectors of the Irish property market are going to find 2008 challenging. CB Richard Ellis believe that activity in the residential sector in Ireland will remain relatively stagnant this year (particularly in the first half of 2008) and that house completions could realistically fall by another 30% during the next 12 months. However, they remain very confident about prospects in the commercial occupier markets including the office, retail and industrial sectors on the basis that the Irish economy continues to perform relatively well in European terms and the balance between supply and demand in these sectors is well controlled. They do however, warn developers to be mindful of the potential for oversupply in the retail sector, considering the quantum of new retail accommodation that has been built in Ireland in the last decade and the fact that consumer spending is expected to slow down in 2008.
CB Richard Ellis expect a noticeable increase in transactional activity in the hotel and pub property market during 2008 but point out that considering the current economic and financial backdrop and the difficulties being experienced in securing funding for development projects, that we are unlikely to see developers paying unrealistic prices for premises with alternative development values as was the trend in recent years. They warn that competitive pressures will prove particularly challenging for many publicans over the course of the next 12 months.
CB Richard Ellis expects domestic investment activity to remain strong this year, buoyed by the continued strength of the occupier markets, which offer the potential for further, albeit slower, rental growth. However, they point out that uncertainty in global financial markets will continue to have a major impact on sentiment and the availability and cost of debt in the first half of 2008 and as a result the bulk of investment transaction activity is likely to be concluded in the second half of the year. They also point to the fact that yields may come under pressure in some sectors of the Irish market this year. CB Richard Ellis believes that opportunities to achieve real value will emerge in the UK investment market in the latter half of 2008, following sharp prices declines in recent months. They are confident that Irish investors will continue to invest in prime property in European markets in 2008 and expect to see Irish capital moving to more varied destinations across Europe and indeed globally this year.
CB Richard Ellis believes that 2008 will see a major re-adjustment in the development land market in Ireland. A decline in the availability of bank funding and stagnation in the Irish housing sector over the last 12 months led to significant price declines in this sector. This, according to CB Richard Ellis, will lead to strong demand for well-located sites from opportunistic developers looking to acquire land at ‘fair value’ this year. Buyers with cash equity to invest will fare well in this environment, particularly if they are buying sites with long-term development potential. With the prospects for the Irish property market more subdued than heretofore, particularly in the residential sector, CB Richard Ellis expect demand from Irish developers for good sites in the UK, most notably in London, to increase in 2008.
The property consultants believe that buyer apathy has yet to dissipate in the new homes sector. While Government reform of stamp duty in Budget 2008 may help to improve sentiment over the course of the year, they believe that the new homes market will remain relatively stagnant in the early part of 2008. They state that even if sentiment improves and buyer activity re-ignites there is still a considerable inventory of unsold housing stock to be absorbed and the level of housing completions could realistically fall by another 30% in 2008.
According to the author of the report, Marie Hunt, Director of Research at CB Richard Ellis “Forecasting property market performance in the current climate is extremely difficult. While we can monitor supply and demand with a reasonable degree of accuracy, influencing factors such as the performance of the Irish economy and the availability and cost of bank funding are largely dependent on what transpires in global economies and financial markets. While we believe that 2008 will be a challenging year for some sectors of the property market, we are confident that while the first half of the year will be slow, strong underlying fundamentals should ensure that momentum picks up as the year progresses. Many investors and developers will see 2008 as a year of good buying opportunities. However, the key ingredient that will drive transactional activity is confidence and this to a large extent will be determined by wider global factors, which at this point are difficult to predict”.