CBRE: Increasing interest from international buyers in the investment sector ‘Meaningful improvement’ in property market: CBRE A leading property consultancy firm says that despite all the “doom and gloom”, the market is showing signs of life. CB Richard Ellis predicts there will be a "meaningful improvement" in transaction volumes in the investment and occupier sectors in the third quarter of this year. In its latest bi-monthly report, the commercial property firm says there is increasing interest from international buyers in the investment sector and transaction volumes in some sectors have increased in recent months. CBRE is bearish, however, on the short-term prospects for other sectors of the market, such as development land, hotels and pubs, given, it said, the reliance of these sectors on a functioning debt market. However, they say there is still demand for good properties offering secure income. This is demonstrated by the fact that six of the seven AIB bank branches offered for sale during the summer are changing hands at or above their guide prices. Ironically, CBRE says that now that the demand is starting to emerge, there is limited availability of prime investment opportunities to satisfy these requirements. CBRE managing director Guy Hollis said: "We have definitely seen renewed transactional activity in some sectors of the Irish property market in recent months and are encouraged that transaction volumes will improve over the course of the autumn. "While rents and capital values remain under pressure, it is wrong to assume that the market is dead. The reality is that transactions are being negotiated in many sectors of the market and activity is picking up as economic projections improve." Outside of the investment and occupier sectors of the property market, conditions remain very challenging, it said. With no debt available and none likely to emerge in the development land sector for the foreseeable future, demand for land is restricted to a small number of cash buyers at present, according to CBRE. It said it is difficult to envisage any improvement in the development land sector in the near term. It said the focus for the foreseeable future will be on the potential implications of the establishment of NAMA.

Demand for good properties offering secure income Dublin A large proportion of the letting activity in the Dublin market is from companies vacating older premises to avail of better terms and conditions in other buildings, according to CBRE. “The result is that the level of net absorption is quite low and despite the quantum of letting activity, the vacancy rate continues to increase and the quality of vacant accommodation continues to deteriorate,” it said. The overall vacancy rate in Dublin is now almost 21 per cent, whereas the vacancy rate in the core Dublin 2/4 district is somewhat lower at 14 per cent. According to the September report, CBRE said that although office lettings continue to be negotiated, with landlords anxious to generate cash flow and tenants in a strong bargaining position in the current climate, prime headline rents in the Dublin office market continue to come under pressure. Headline rents, it said, now stand at approximately €430 per square metre, having peaked two years ago at €673 per square metre.

Retail sales increased by 2.2 per cent in June Retail: ‘Welcome reversal of the negative trend’ Meanwhile, the most recent retail sales data shows a “welcome reversal of the negative trend” with retail sales in June showing a 2.2 per cent increase month-on-month. However, CBRE say this improvement is very small and “should not be taken to herald a recovery”. The reality is, it said, that most sectors of the Irish retail market are going to continue to struggle for the remainder of 2009 with much dependent on what is likely to be a very challenging Christmas trading period. “Against this backdrop, cost control and collaboration between landlords and tenants will become increasingly important and an increasing number of transactions are likely to contain a turnover-related element,” CBRE said.

Notable improvement in enquiry and inspection levels in recent weeks Industrial Sector: ‘Encouraging signs but understandably cautious’ There has been a notable improvement in enquiry and inspection levels in the industrial sector in recent weeks, which CBRE reports as “encouraging”. However, with economic prospects remaining weak for the foreseeable future, CBRE said that industrial occupiers remain “understandably cautious”. Therefore, CBRE said, it not surprising that the bulk of the transactional activity being concluded in the industrial sector at the moment comprises of short-term lettings or lettings with future purchase options. The commercial property consultant said that tenants are in a very favourable bargaining position in the current climate and as a result, rental values continue to come under pressure. Prime headline rents are now less than €100 per square metre in the industrial sector. “While construction costs have certainly eased considerably in the last twelve months, the financial viability of some proposed industrial schemes won’t stack up at these rental levels,” CBRE added.

'Tangible evidence' of some buyers re-entering the UK market for prime assets UK sees first positive return in two years The UK investment market has improved recently, with total returns in the region increasing by 0.2 per cent in July - the first positive return in over two years. However, in its latest Monthly Index, property consultancy firm CB Richard Ellis said this is mainly as a result of yields stabilising. The commercial property firm said there is “tangible evidence” of some buyers re-entering the market for prime assets in recent weeks and there has been a notable improvement in transaction volumes, “albeit from a relatively low base”. CBRE said it expects an upturn in investment activity in the UK in the third quarter of this year, but does not expect Irish investors to feature for some time yet. While there are signs of improvement starting to emerge in the investment sector in the UK, the index pointed out that conditions in the occupier markets, namely the office, retail, industrial sectors of the economy, continue to find conditions challenging, with significant pressure on rents and capital values. “While tenants are in a strong bargaining position in the current climate and are seeking out very competitive terms and conditions, it is important to point out that transactions continue to be negotiated,” CBRE said.