Property giant and NAMA valuation panel member, Jones Lang Lasalle (JLL), has released to the media the results of its survey on Irish commercial property for Q3, 2010. A report should become available in due course from the JLL website (free registration required). The JLL quarterly index on Irish commercial property is one of two (the other being the SCS/IPD quarterly index) cited in the NAMA Long Term Economic Value (LEV) Regulation in terms of being an authorised index for the purposes of establishing LEV. The JLL index is the one used to inform the data used at the top of this page because it is generally released earlier than the SCS/IPD index – that may be reviewed in future months.
So, what do JLL say to the media? They claim that commercial property capital values fell by only 1.1% in Q3, 2010. This brings the decline since 30th November, 2009 (the date used by NAMA to value the Current Market Value of loans) to 9.04%. According to JLL, commercial property capital values are now 59% off the peak in Q3, 2007. The quarter-to-quarter decline is the lowest decline since Q3,2007 and has prompted JLL’s Head of Research, Dr Clare Eriksson to say “we may be reaching the bottom of the market for prime commercial property for Ireland in the next three to six months”. With NAMA set to start releasing property onto the market (mostly through the developers themselves under NAMA’s auspices, it should be said), an abundance of empty commercial property (not always in the right location) and with a fairly tough fiscal contraction in prospect, though with GDP growth next year of 2-3% and limited construction of new commercial property, who knows.
As regards rents, JLL say that rents declined 5% quarter on quarter and are down some 19.8% this year. This may be the bigger story as most rents in the State are governed by pre-February 2010 lease/rental agreements which provide for upward-only rent reviews. Setting these to one side may mean colossal reductions in rents in new agreements.
As regards yield (rent divided by capital value), JLL’s managing director in Ireland, John Moran, says it stands at 8.5% which he claims will allow some cushion for further declines. Hmmm, with rents falling more than 20% per annum and 5% in the most recent quarter, that cushion may disappear pretty quickly. Below is a table showing the JLL indices. The Q3, 2010 index is calculated using the information that it is 1.1% less than the Q2 index. The November 2009 index is estimated because the index is quarterly. The peak is also estimated based on the statement in today’s report that the current index is 59% off peak.
UPDATE: 4th November, 2010. The other Irish commercial property index, the SCS/IPD index has been released for Q3, 2010. It shows a greater capital decline of 2.6% compared with JLL’s but the index places peak to present at 59% which is exactly in line with JLL. SCS/IPD also say that rents fell by 5.2% in Q3 which echoes JLL.
NAMA Wine Lake 