Jones Lang LaSalle (JLL) has this morning published its Irish commercial property indices for the three months ending 31st March 2013, and unsurprisingly prices continue to decline, by 0.6%% in Q1,2013 compared with Q4,2012 and by 6.9% for the past four quarters. Prices are now down 67.3% from peak and 27.4% from November 2009, the NAMA valuation date. The report should be available online at the JLL website shortly.
By reference to the €9.25bn paid by NAMA for loans underpinning Irish commercial property, which relate to values in November 2009, this morning’s release means that the underlying value of NAMA’s loans by reference to the asset value has decreased by another stonking €56m. For those of you who remember the former finance minister, the late Brian Lenihan, suggesting prices were bottoming out in September 2009, the near 30% decline since highlights the poor planning of NAMA. And although Brian Lenihan might have shuffled off this mortal coil, John Mulcahy, the current NAMA Head of Asset Management whose advice to Brian Lenihan is understood to have led to the prediction of the bottom, still walks amongst us.
There is some eagerness at JLL to emphasise that the index is a general index covering all 29 properties in its portfolio that are analysed every quarter – 29 might seem like a small sample, but there is a very strong correlation between the JLL index and the 300-strong property SCSI/IPD index. JLL does say that some prices in some subsectors are stabilizing – prime property with new leases – but declines in older property especially with pre-March 2010 leases continue to drag the overall capital values down.
Although not stated by JLL, there appears to be some firming up of values of prime property with post-February 2010 leases which are not subject to Upward Only Rent Reviews. However, as old UORR leases expire and rents fall to current market levels, capital values on such properties dive.
Rents are down 3.2% in the quarter and 6% in the past year and are down by nearly 51% from peak. Because most pre-March 2010 leases in Ireland contained so-called Upward Only Rent Review clauses, older lease tenants may still be paying rents today which are more than double the market rent.
Hannah Dwyer, Head of Research at JLL says “retail rents continue to be under pressure, with stabilisation only evident for prime rack rented units on main high streets and strong-performing centres. Other types of retail and other locations struggle in comparison. Office (-0.2%) and Industrial (-0.1%) Rental Values only recorded small decreases in the quarter which is reflective of greater stability in prime rents in these markets.”
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 later on today; because it is generally published after JLL’s, it is not used here to help compile the NWL index, but the SCSI/IPD index does historically show a very close correlation with JLL’s.
With the latest release from JLL, Irish commercial property prices have fallen 27.4% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 776 meaning that average prices of NAMA property must increase by a weighted average of 28.8% for NAMA to breakeven on a gross basis.
UPDATE: 24th April, 2013. IPD has now published its indices for Q1,2013 and show an overall 1.0% decline in capital values. This is the comparison between JLL and IPD incorporating the latest index results published today.