Archive for February 14th, 2012

Today sees the publication of the January 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index 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 Index shows that capital values fell by 0.2% in January 2012, following a fall of 0.1% in the previous month and several months of almost flat performance. Prices reached a peak in June 2007 and fell steadily until August 2009 when the current rally started. Prices then increased by 15% in the year to August 2010 but since then prices are up a measly 1.9% and in six of the last 12 months the monthly increase had only been 0.1%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 11.2%. Commercial prices in the UK are now 34.3% off their peak in June 2007. On an annual basis prices are up by just 0.9%. The NWL index  falls to 830 which means that NAMA needs to see a blended increase of 20.4% 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).

The table below shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner.

The outlook for commercial property in the UK remains quite shaky. On the macro economic level, some economists are predicting the UK will slide back into recession in 2012, others disagree but no-one is projecting healthy growth. The UK is tackling its economic crisis in part by printing new money, to date it has printed between GBP 275-295bn and it announced last week that it would print a further GBP 50bn. These are significant sums in the context of the UK’s GBP 1.5tn economy and although inflation figures published today showed annual inflation dipping below 4% for only the first time since December 2010, this coming year looks set for 4%+ inflation. Moody’s yesterday warned that the UK’s top AAA rating on its bonds would be jeopardized if the UK government failed to tackle the deficit which is at the same level as ours – 10%, or if global events dampened UK growth. A shaky macroeconomic outlook.

With respect to commercial property, it’s a tale of two cities, or more correctly London and the rest of the UK. The consensus is that London will continue to see modest growth in prices over the medium term whereas regional centres will see values come under pressure. DTZ this morning published its Global Occupancy Costs: Offices for 2011 and confirms that most parts of the UK saw declines in 2011 except London. You can see rival property company, Jones Lang LaSalle and their 2012 predictions for the UK property market here which predicts the UK economy will be worse in 2012 than in 2011, though it hopes that by mid-2012 and assuming some resolution to the EZ crisis, an upturn can be expected. It remains upbeat about London in leading any recovery due to “its international links and its attractions as a safe haven in a crisis”. Commercial rents are set to moderate in their rate of increase, but they are still expected to increase – that’s for 2012, a bounce is expected in 2013. The gulf between prime London and the rest is seen as widening. Shortages of grade A accommodation in London will act to support prices. EA Shaw published today an upbeat assessment of centra lLondon’s office market with very robust take up of office space in the fourth quarter of 2011.


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On this side of the Border we get a jobs plan which promises 100,000 new jobs over 4-5 years – and I regret being cynical but the absence of detail in yesterday’s publication was disheartening and quite a few initiatives have been completed which made the purpose of the document curious – whereas in Northern Ireland this morning, Minister for Finance and Personnel, Sammy Wilson announced the creation of 2,500 new jobs to be generated from GBP 580m (€690m) being spent on improving infrastructure.

The A5 road, the funding for which we welched on in the December 2011 budget  breaking a previous commitment, is to receive GBP 330m of funding. Two sections of the A5 will benefit – Derry to Strabane (countyTyrone) and Omagh to Ballygawley (both in Tyrone). A portion of the A2 road which circuitously connects Derry and Newry hugging the coast, is to receive GBP 57m for improvements to a 16km stretch between Carrickfergus andBelfast, and GBP 105m will be spent on theBelfastto Larne dual carriageway, according to the BBC. Below is rough approximation, prepared here, of the road works, marked in green.


On this side of the Border NAMA has already loaned €10m to Fingal council to help fund a road in west Dublin, aimed at enhancing the value of some property in the NAMA portfolio. It seems that NAMA will be a collateral beneficiary of this morning’s announcements. PBN, one of Northern Ireland’s biggest property companies and a NAMA client has a business park – the former Courtaulds facility – and hotel in Carrickfergus which can only benefit from better connectivity with Belfast. No doubt NAMA will examine other property in its portfolio for any value enhancement following this morning’s announcement which also promised funding for three hospitals.

Meanwhile on the side of the Border, the NTMA is making slow work of attracting €1bn of third party funding to accompany its own planned €250m investment in infrastructure. Some politicians are chomping at the bit for the NTMA to commit more of its own funding to infrastructure. And we seem to be making very slow progress in assembling state assets for sale, the proceeds of which, according to Ministers Noonan and Howlin, can be used for stimulus. 100,000 new jobs is a fine blue sky/cloud aspiration but 2,500 supported by real investment is more credible.Northern Irelandhas a 6.8% unemployment rate compared to 14.2% on this side of the Border.

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I really don’t understand why it is Ireland’s Department of Finance (DoF) producing this information, and not the Central Bank of Ireland (CBI), but regardless, it seems as if we are to get a new monthly informational bulletin from the DoF on deposits held in state-guaranteed or so-called “covered” banks – AIB (including EBS), Bank of Ireland, Permanent TSB and IBRC (the Irish Bank Resolution Corporation, the merger of Anglo and Irish Nationwide Building Society). The new bulletin gives details of what it calls the “consolidated” deposits in Irish banks.

The CBI already produces monthly figures on private sector deposits in the covered banks, but the CBI’s figures exclude deposits held in “overseas subsidiaries” of the covered banks and also include what are described as “intercompany deposits”.

So what do we learn? We see that “consolidated deposits” flowed out of the covered banks for the first six months of 2011 – averaging €2.5bn per month from a base of about €150bn. Deposits remained flat in July and August 2011, and then for the last four months of the year deposits flowed back in at an average rate of €1.8bn per month, so at the end of 2011 there were €147bn of “consolidated deposits”. I use the term “flow back” deliberately – a FG politician recently made that claim in those terms which was disputed on here at the time; that was because it was assumed he was talking about deposits in Ireland in Irish banks but if he was talking about all deposits including those in other jurisdictions then his terminology is correct.

The new figures are to be welcomed, but I really don’t see how deposits in “overseas subsidiaries” have a big impact on the Irish economy. For example, Bank of Ireland has a joint venture in the UK with the Post Office, and the last time I checked the venture had about €10bn of deposits. What does it tell us about the Irish economy if that increased to €11bn. Presumably it can’t form the basis of lending in Ireland, but I suppose it does help support the bank overall which means lessens the State’s potential exposure to it.

The DoF was asked for further information on the quantum of “overseas subsidiary” and “intercompany” deposits. If there is any update, it will be posted here.


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