We should get the Q4, 2011 Irish commercial property price indices from both Jones Lang LaSalle and SCSI/IPD, in the next fortnight. I would wager that prices may have risen very slightly in the quarter for the first time in four years – the JLL index has consistently fallen every quarter, from a peak of 1,468 in Q3,2007 to 521 in Q3,2011; the reason for a slight rise would be Minister for Finance, Michael Noonan’s decisions in Budget 2012 which he did tell us about on the day – the reduction in stamp duty on commercial property transactions, the abandonment of proposals to abolish upward only rent review clauses in pre-February 2010 leases and enhancements to capital gains to encourage purchases. On the other hand, wider economic measures have tended to be weak, so it any increase is likely to be minimal. Commercial property prices have fallen 65% from peak already, and the forecast on here was that prices would decline slightly in 2012.
Today the National Competitiveness Council (NCC) published its annual report for 2011 in which it anticipates commercial prices falling further, although the NCC report suffers from an absence of quantitative support for its claims. What the NCC does do is to call on NAMA to become more transparent in its operations, publish more information on its portfolio and to dispose of property in the Irish market. NAMA is seen as one of the main obstacles preventing commercial property falling to a more competitive level. The NCC claims that commercial property prices in Ireland are still too expensive by comparison with competitors and says the prices are not justified by the “underlying potential for adding value or earning market rent”. Again, there’s little in the way of figures to support this, and although I have not seen recent comparisons, this time last year it was reported that commercial property prices in primeBelfast were still nearly twice those inDublin.
The NCC calls on NAMA to get on with disposing property, and remember that unlike the residential property market where despite the hysteria, NAMA is actually a small player, in the commercial market NAMA controls approximately €6-7bn of assets which is very significant indeed. The NCC also calls for price information (sales and rental prices) to be publicly registered, something we may get from mid-2012.
So if commercial property is presently 65% off peak, how low can it go? The Central Bank had an adverse scenario of 70% in its stress testing last March 2011, which would represent a 14% drop from today’s prices (100 at peak, 35 today, 30 bottom representing a 70% fall from peak, a drop from 35 to 30 represents a 14% decline). But who knows, it would have been helpful if the NCC had quantified values based on “underlying potential for adding value or earning market rent