Jones Lang Lasalle (JLL) has today published its commercial property series for Ireland for Q4, 2011(the report should be available here later). 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 SCSI/IPD and will be available on Wednesday 25th January 2012 at 3pm; because it is generally published after JLL’s, it is not used here but the index does historically show a very close correlation with JLL’s.
The JLL Index shows that capital values rose in quarter four, 2011 for the first time since Q3, 2007. The Index increased by 1.2% in Q4, 2011 compared with Q3, 2011. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have declined by 20.6%. Commercial prices in Ireland are now 64.2% off their peak in Q3, 2007 – Jack Fagan in the Irish Times says 63.8%, mind you he refers to “Jones Land LaSalle”. On an annual basis prices are down by 10.0%. The NWL index is now at 833 which means that NAMA needs to see a blended increase of 20.0% 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).
Taking account of the measures announced in Budget 2012 – the reduction in stamp duty on commercial transactions from 6% to 2%, the abandonment of proposals to abolish Upward Only Rent Review terms in pre-February 2010 leases and the enhancement of capital gains arrangements for commercial property held for several years – the expectation was that there would be a small increase in commercial property prices in this quarter. However the anaemic broader economic picture, oversupply, uncertainty about NAMA’s intentions with its market-moving portfolio (estimated to be worth €6-7bn in an Irish market which saw less than €0.5bn of transactions last year) are all tending to put downward pressure on prices.
Two transactions in Dublin’s south Docklands before Christmas show that the Irish commercial market is not completely flatlining. Number One Warrington Place is understood to have sold for €27m representing a traditional yield of 8%, or nearly 6% by reference to what rent would be on the space if a new lease was created today. The buyer is understood to have been Prudential. And Riverside II is also understood to have sold for close to its asking price of €35m.
The Irish Times reports that commercial rents fell 10.2% in 2011.
UPDATE: 18th January, 2012. The JLL report is now available online here, and it adds considerably to the commentary in Jack Fagan’s report in the Irish Times. JLL says that the increase in Q4, 2011 was “technical” and arose as a result of the reduction in stamp duty. Excluding the effect of stamp duty, underlying prices in fact fell by 2.6%. However it is reported that rents fell just 0.5% in the quarter which indicates a considerable easing of downward pressure on rents, is this because landlords no longer have the threat of Government interference in Upward Only Rent Review clauses?
UPDATE: 26th January, 2012.
Yesterday the Society of Chartered Surveyors in Ireland (SCSI) and the IPD released its joint Irish commercial property price series for quarter four of 2011. It too shows an increase in Q4, 2011 but of just 0.2%. The SCSI/IPD index should be more accurate than JLL’s as it examines values on 328 Irish properties compared with about 30 at JLL. Having said that both indices show a remarkable correlation. Here’s the summary and the comparison with JLL’s:
NAMA Wine Lake 
“On an annual basis prices are down by 10.0%. The NWL index is now at 833 which means that NAMA needs to see a blended increase of 20.0% 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).”
This is a shocking slap in the face to NAMA. It is now obvious that the government policy re the upward only rent climb down and other tax benefits aimed at developers are in order to prevent massive losses within Nama that the government would have to make up. The fact that Nama requires a 20% increase in property prices just to break even has not been reported widely in the media. It is also the exact opposite to what the economy actually requires.
Lower Property prices would lead to people having more disposable income to spend in the local economy.
@Eamon
“Lower Property prices would lead to people having more disposable income to spend in the local economy.”
… and increase competitiveness.
I recently spoke to a retired civil servant who had been looking at houses. Apparently, there are houses to be had in Kilkee for €125,000. Since this is in and around the size of the lump sum that a lot of retiring civil servants can expect to see come February, I expect the property market may well have a bit of a bounce in the first half of this year.
(It goes without saying of course, that the new car industry will have a second coming.)
Now, there are still a lot of houses rotting in Ghost estates, but it’s possible, possible that these have already been written off as worthless by general house buyers. In other words, they may as well have been demolished. If the public can make a distinction between house which are lost and those which can be saved, we might see “green shoots” sprout up among all the weeds as shrewd cash rich buyers seek out traditional deals.
I expect that any house built before 2000, and priced below €200,000, will be bought this year in most parts of the country. However, this still leave the problem of the boom-time houses, houses in negative equity, and the ghost estates. It’s not all going to be roses by a long shot.
Looks like NAMA was correct all along,not changing UORR expected to lead to further increases any day now.The market was paused,can someone press fast forward or at least play.
“Another important legislation that was clarified in the Budget is the Government’s decision on retrospectively banning Upward Only Rent Reviews (UORR) in existing leases. The property market performed poorly last year as it paused for almost 12 months whilst investors and occupiers awaited clarity on their proposal.”