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News Release

Dublin

Irish Property Index Q2 2011

Disappointing overall Index results for Q2 2011 highlight Irish property market instability, setting back previous signs of positivity


Dublin, 13 July 2011 - The Jones Lang LaSalle Irish Property Index reveals slightly disappointing results for Q2 2011 with a decrease in overall returns, following a promising period of stabilisation in the previous quarters. According to Hannah Dwyer, Research Analyst at Jones Lang LaSalle, “Capital values and rents for all three property sectors (offices, retail and industrial) declined further in Q2 2011, continuing to fall at a higher rate than that experienced in Q1 2011”.
 
The capital value of commercial property in Ireland fell by -5.7% in Q2 2011 and by -7.2% in the first two quarters of 2011 overall. The industrial sector continued to experience the sharpest decline in capital performance, falling by -7.1% in Q2 2011, and -17.4% year-on-year. Capital value for offices fell by -6.2% in Q2 2011, and -10.4% over the last 12 months. Retail values also dropped, with a -4.6% decrease in Q2 2011 and -9.9% in the year to June 2011. “Despite the rate of decline in capital values slowing in Q1 2011, the
negative growth in the second quarter of the year was the highest quarterly value decline recorded by the index since Q4 2009”, according to Ms Dwyer.
 
She also stated that “rental values across the entire Index portfolio fell by -4.6% in Q2 2011, which is reflective of the continuing pressure on occupational markets and attractive inducements being offered to prospective tenants”. Rental values in the office sector were hardest hit, falling by -6.4% in Q2 2011, and by -18.3% in the previous 12 months to June 2011. The retail sector performed equally poorly, with a -3.1% decrease in rental values from the previous quarter, and -15.7% decrease year-on-year. Industrial rental values were also under pressure, with decreases of -2.1% and -17.8% in the quarter and year respectively.
 
 “Positively, net income fell at a slower rate than the previous quarter, which  is an emerging positive sign for the property market in this quarter”, added Ms Dwyer. Although there is a yearly decrease of -12.9%, only a -2.5% fall was experienced in Q2 2011, compared to -4.8% in the previous quarter. According to Ms Dwyer, “the reduction in income can be largely attributed to a continued increase in the number and size of landlord incentives being granted to tenants experiencing trading difficulties, primarily in the form of rental abatements and reductions”. Encouragingly, the overall income yield in the portfolio compares well with the previous quarter, and now stands at 8.7%. Ms Dwyer stated that “this strong rate of income return is a continued sign of yield stabilisation, and the main positive for the Irish commercial property market going forward”.
 
It must be noted that capital values at Q2 2011 do not allow for the proposed legislation on the abolition of upwards only rent reviews in existing leases. Should a downward rent review be introduced into existing leases, a fall in capital values of an estimated 20% to 30% may occur.
 
“The Irish property investment market has therefore ceased
activity as investors await the result of the government’s proposals, which, if introduced has the potential to
significantly negatively impact market performance” added Ms Dwyer.