The latest report on the Irish commercial property market by DTZ Sherry FitzGerald suggests a more positive outlook for 2012, following a challenging year in 2011.
Commenting Marian Finnegan, Chief Economist, DTZ Sherry FitzGerald said: “2011 marked the third consecutive year of market decline however the combination of measures introduced in Budget 2012 and the resolution on upward only rent reviews suggests that 2012 will be a year of improved activity.”
In reviewing the investment market, the DTZ report noted that activity levels remained very subdued in 2011 with only approximately €175 million of investment transactions in the twelve month period. A key issue in 2011 was the uncertainty and threat surrounding the proposed retrospective rent review changes which was laid to rest with the minister’s announcement in Budget 2012. The market needed clarity on this issue expediently and overseas investors, in particular, were frustrated by the lengthy delay in resolving this issue.
Another welcome measure announced in the Budget was the reduction in stamp duty for non-residential property from 6% to 2%.
Commenting Marian Finnegan, said: “This combined with the increase in VAT from January will mean standard transaction costs will be approximately 4.46% down from 8.42% this year. This is a significant reduction in a market where equity is scarce and makes Ireland’s transactions costs very competitive. It should be noted that comparable costs in the UK are approximately 5.76%.”
The third measure introduced in the Budget which will benefit the market is the capital gains tax proposal. A capital gains tax incentive was introduced for property purchased between midnight December 6th and the end of 2013. If a property is bought during this period and held for at least seven years, the gain attributable to that seven year holding period will be exempt from capital gains tax.
Interestingly, despite the domestic and international economic challenges the Dublin office market enjoyed a year of improved activity when compared to 2010. Overall, gross take up in Dublin rose to 131,800 sq m while notably net take up moved to a positive 44,100 sq .m. having recorded a negative figure of 15,000 sq. m. in 2010.
The Central Business District was the location of greatest activity with gross take up of 70,300 sq. m. recorded in the twelve month period. The strongest activity 62% was for Grade A1 accommodation in the CBD. Availability of this grade of accommodation has now fallen to 102,850 sq. m suggesting that there is only a one or two years supply. As such the report suggests that new construction activity could commence as early as 2013 in the CBD. This is likely to lead to a distortion in the CBD market between existing stock and design & build projects in terms of rental and lease terms.
Overall vacancy levels fell to 22.4% while vacancy levels in the CBD stood at 15.8% at year end.
Activity levels in the office market of the regional centres of Cork, Limerick and Galway vary by location. After a strong performance in 2010, the Galway office market enjoyed another year of heightened activity in 2011. Overall take up levels stood at 11,400 sq .m at year end, up 42% on 2010 levels of activity however it was three notable transactions during 2011 that will unquestionably be the highlights of the year.
Firstly, leading information technology company Hewlett-Packard (HP), announced early in the year that they are seeking additional office accommodation in Galway. HP is proposing to lease a new purpose built office block measuring up to 9,290 sq m. HP have short-listed a number of parties on a potential design and build project as such accommodation simply does not currently exist in the Galway market.
Interestingly the other two transactions for large size office space in Galway were both to US gaming companies ZeniMax Online Studios and Electronic Arts (EA). Both companies acquired approximately 4,650 sq m respectively. However, the shortage of available modern office buildings to provide this floor plate requirement resulted in both parties looking at manufacturing facilities which required retro fitting to call centre/office accommodation. A similar distortion to that forecast for CBD market in Dublin is emerging in Galway as a result of supply shortages.
Commenting on the wider market, Marian Finnegan noted, “Despite the economic challenges that persist there are pockets of the markets that are performing well in very challenging circumstances. This is particularly notable in the prime office market in Dublin and the wider Galway commercial market. The resolution of long standing challenges for the market specifically in relation to legislative changes have set the scene for a year of heightened activity in 2012 which should hopefully see international investors returning to the market to avail of the significant opportunities which exist here.”