Jones Lang LaSalle (JLL) will later today publish (free registration required)its commercial property series for Ireland for Q1, 2011 – until the report is published on the JLL website you might have to do with Jack Fagan’s advance reporting in today’s Irish Times. The JLL series is one of the two Irish commercial indices referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page. The other quarterly Irish price series is published by SCS/IPD and will be available tomorrow afternoon; because it is generally published after JLL’s it is not used here but the index does historically show a close correlation with JLL’s.
The Index shows that capital values are continuing to decline though the pace of decline is moderating. The Index declined by 1.5% in Q1, 2011 compared with Q4, 2010. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have declined by 13.1%. Commercial prices in Ireland are now 60.9% off their peak in Q3, 2007. On an annual basis prices are down by 10.0%. The NWL index is now at 888 which means that NAMA needs to see a blended increase of 12.6% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).
In terms of commercial components, Retail was down 1.3% in the quarter, Office was down 1.6% and industrial was down 1.7%. JLL are, yet again surprisingly, upbeat about the figures saying that the 1.3% decline in Q1 is the smallest quarterly decline since Q4, 2007 (with a single exception of Q3, 2010). The most recent capital declines have been as follows: (2010) Q1 (2.1%), Q2 (4.7%), Q3 (1.1%), Q4 (3%) and Q1, 2011 (1.3%) – personally I feel sympathy for the property companies trying to paint an upbeat picture whilst the market is clearly still very challenging.
Margaret Fleming, the JLL director of investment at JLL says that the Q1, 2011 figures do not include the effect of the proposed abolition of Upward Only Rent Reviews (UORRs) which, she claims, would lead to a “20 to 30 per cent” further decline in capital values. This is the first time I have seen an estimate over 20% to reflect the proposed changes to UORRs. The then-Society of Chartered Surveyors inIreland indicated that the estimated decline would be 20% for its portfolio that it assesses with IPD to produce its commercial prices index which rivals JLL’s.
JLL report that rents fell by 3.1% in Q1, 2011 which represents a moderation in the pace of declines which have been running at over 20% annualized in the previous four quarters.
The outlook for 2011 is challenging. Hopefully NAMA and non-NAMA banks will bring more product to market. There should be some stabilization in the overall economy though domestic demand is likely to decline. Credit for Irish property is still scarce though there are reportedly pots of €10m available for quality assets with reliable rent rolls. The prediction on here is that capital prices will decline 10% this year (25% if the UORR legislation is introduced).
UPDATE: 27th April, 2011. The report from JLL is now available online here. The report shows the present average yield on Irish commercial property to be 8.4%.
NAMA Wine Lake 
The Society of Chartered Surveyors,the mouthpiece for the landlords and speculators , continue to lobby to retain the notorious upward only rent review commercial lease clause.
Toxic Irish commercial lease law i.e. upward only rent reviews tied to long leases ,did not just destroy the tenants,it was the rocket fuel for the commercial asset pricing model which created the monster commercial property bubble.
Yada Yada Yada. This is quite worrying for NAMA. Who would be willing to take on their staple-finance if prices are expected to continue to decline in Ireland.
Daly and McDonagh would do well to heed the Keynesian adage that the market can remain irrational longer than you can remain solvent….
We need to establish a real floor to get transactions and construction going again not an artificial floor through NAMA staple-financing
@BR, the Central Bank baseline scenario for 2011 & 2012 for commercial property prices was for a 2.5% drop in 2011 and a 1.5% rise in 2011 (the adverse was a drop of 22% this year and a 1.5% rise next year). Frankly I don’t think you can take a lot from Q1, 2011 and I still think Google overpaid for Montevetro and Gordon House and that may have fed through to valuations. Also the decline in Q1, 2011 was more than the decline in Q3, 2010. So who knows how prices will turn out for the year. But with uncertainty over State default, UORRs and the wider economy, you would have to be cautious about the market generally.
Central Bank of Ireland macroeconomic assumptions for stress tests –
http://www.financialregulator.ie/press-area/press-releases%5CPages%5CInformationNote-CentralBankPublishesCapitalAssessmentMacroEconomicScenario.aspx
The Google purchases were a once in a lifetime super deal for the sellers. As I stated previously, these properties are chump change for Google.
I would assume any buyer might wish to wait until Ireland defaults before diving into the shallow end of the pool. The bond market is screaming default. By the way, has a sovereign bond ever hit 100% yield or is that a de facto default? Looks like the Greek bonds are headed that way and the strategy is to let them go first and then have Ireland and Portugal follow after the dust has settled.
@John. I do not know how many times it is necessary to nail the lie. It was not the leases that were the rocket fuel for the bubble. It was credit expansion. And that is no fiction.