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Irish commercial property deals ‘stagnating’

Just €392m worth of transactions were completed in the first six months of 2008, compared to €1.9bn for the same period last year, according to a report by CBRE which warned the country was going through a ‘very challenging period.’

Property deals in Ireland have come to a “virtual standstill” with just one-fifth of the value of deals closed in the first six months of 2008 compared to the same period in 2007.

A report by Richard Ellis said the credit crunch, and the subsequent liquidity crisis for property investors, had resulted in €392 million ($574 million) worth of deals being closed in the first half of this year in Ireland compared to €1.9 billion in 2007.

The “Market Watch” report added that the weakening economy and lack of debt financing was pushing yields up sharply and resulting in “stagnation.” Combined with declining investor confidence and demand and supply issues, the report went on to say that “activity [has] com[e] to a virtual standstill in recent months.”

Investors in commercial property in Ireland tended to be domestic, CBRE said, owing to the country’s nine percent stamp duty tax on property. However the report said the trends currently being seen in Ireland were similar to those being experienced in the UK commercial real estate market. Irish investors had even turned away from investing in the UK, CBRE commented, with just €795 million of transactions recorded in the first half of 2008 compared to €5.5 billion 12 months earlier.

Yields, the report said, would have to move by “another 50 to 75 basis points” if buyers were to start investing in increased numbers. According to the real estate research company, Investment Property Databank, cited in the CBRE report, total property returns in Ireland declined 8.5 percent in the first six months of 2008, while capital values declined by 10.5 percent in the period.

CBRE said fundamentals, such as occupancy rates, remained healthy, but until “values re-adjust and bank funding improves” there would be “very little” transactional activity and “the current stalemate will continue.”