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Irish market faces a slow recovery
24 January 2010 By Michelle Devane
Ireland, Spain and the Baltic States will be the slowest markets in Europe to recover from the economic downturn, according to a new report from global property consultants Knight Frank.
According to the report which examined investment property activity across Europe, occupier market activity remained subdued throughout Europe and prime rents were continuing to fall.
However, the pace of rental decline has generally slowed, and there are signs that office rents may be bottoming out in some cities.
Prime office rents in Dublin have declined from 2008 peak levels by about 40 per cent, followed by Madrid and Warsaw, which are down by about 30 per cent each. Moscow has seen the biggest drop, down by about 45 per cent, while London’s West End has fallen by the same percentage as Dublin.
Some markets are likely to see further downward adjustments in rents in 2010 but in the West End of London, for example, prime rents may now have bottomed out at their current rent of stg£65 per square foot per annum. Knight Frank believes that rental levels in that market could be the first to begin to recover in 2010.
Office vacancy rates among the major European markets are now highest in Dublin and Moscow - Dublin has reached over 20 per cent, though Knight Frank maintains that much of this vacancy is in older buildings in suburban locations.
Central London’s vacancy rate has more than doubled in two years to reach 11 per cent in the third quarter of last year, but a more modest rise has been observed in Paris over the same period, from 5.1 per cent to 6.7 per cent. Rents in the retail and industrial sectors have also come under downward pressure, but have generally fallen less significantly than in the office sector.
The report showed that investment activity picked up in the second half of 2009, though transaction volumes remained low compared with recent years. The overall European investment volume for 2009 is likely to be down by as much as 40-50 per cent on 2008.
Prime yields have stabilised in most locations, while in central Paris and London, yields have compressed due to increased competition for prime office properties and the limited availability of product. Central London was the first major market to see yields harden; having reached 6 per cent in early 2009, the West End’s prime yield had moved to 5.5 per cent by the third quarter of last year.
Though investor confidence has improved, the report stated that reports that Dubai World had had difficulties meeting its debt obligations and may be forced to sell its global property holdings was a reminder that uncertainty remained within the market. The firm said it remained possible that other highly geared investors could run into problems during 2010, bringing a further wave of distressed assets to the market.
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