Supply and demand!

Victor

http://www.rte.ie/business/2008/0513/property.html

Building boom hitting office rents
Tuesday, 13 May 2008 13:17

A report from estate agents Lisney shows that commercial property rents fell in the first three months of 2008 for the first time since 2002.

Its rental indices report shows an overall fall of 1% in the period compared with the previous three months. But Dublin office rents were down 2.7%, while the fall in the capital's city centre was 3.1%.

Lisney economist John McCartney blamed the boom in office building and weakening demand for business space. He said the equivalent of 12% of the total Dublin office space had been built in Dublin since January last year, with almost three-quarters of this in the city centre.

Mr McCartney said that while a growing economy was able to absorb this extra space, rents were now easing back as a result of the slowdown.

Rents in the retail and industrial sectors were flat in the first quarter.

johnnyskeleton

What's interesting about commercial property is that it is much more sensitive to market forces than residential property. There is little emotional attachment to premises, and there are a lot less ameteur landlords.

It's tempting (if somewhat misleading) to suggest that seeing as how commercial property seemed to peak in about 2002, that is where residential property should also have peaked, and therefore all the increases in price since then (above inflation) have been pure bubble.

On a side note, if there is a link between the commercial and residential markets, I wonder if a link could be drawn between the Irish and UK markets.

From looking at the London Times, the UK market is in very bad shape.

subway

johnnyskeleton wrote: »

commercial property seemed to peak in about 2002.

according to that article, commercial rent didnt peak in 2002, it hasnt fallen since 2002?

The_Conductor

Curiously enough- in 2002, when rental yields started to decline in commercial property (particularly in a Dublin context), Fingal and DCC both authorised the regrading of a number of commercial developments then under construction into residential units instead. That little measure isn't available on this occassion.

I'd be very interested to know how commercial property is standing up elsewhere in the country- think Portlaoise, Ballinasloe, Galway etc. Whatever about the increase in commercial property in Dublin- its totally mushroomed in many of our provincial locations. Fingers crossed they don't get as hammered as Dublin......

TJM

johnnyskeleton wrote: »

On a side note, if there is a link between the commercial and residential markets, I wonder if a link could be drawn between the Irish and UK markets.

From looking at the London Times, the UK market is in very bad shape.

There's certainly a similar bubble mentality in both places, and there's a direct linkage in that many Irish investors are exposed to the UK buy to let market. Having said that, there are significant differences. The interest rate regimes are very different (UK rates being higher), the UK has a much more transparent market and (possibly most crucially) the UK has a strong collective memory of their last house price crash. There's less of the "property can only go up" mentality you see here - instead the media are already drawing comparisons to the last crash and the negative equity consequences.

These differences may mean that the UK crash will be more of a short sharp shock while our crash will be a much more protracted affair.

Caoimhín

We will be re-negotiating our rates when it is up for review next month and shall be looking for a substantial discount.

johnnyskeleton

subway wrote: »

according to that article, commercial rent didnt peak in 2002, it hasnt fallen since 2002?

Commercial purchase prices as opposed to rents. My understanding (although I don't have the statistics to back it up) is that commercial prices became stangant around 2002 and have seen only marginal capital appreciation since then (as opposed to residential property prices).

Victor

When buy to let investors left the residential market in 2001 and residential prices fell, construction shifted to commercial units, leading to excess supply. The same is happening now.

SimpleSam06

johnnyskeleton wrote: »

My understanding (although I don't have the statistics to back it up) is that commercial prices became stangant around 2002 and have seen only marginal capital appreciation since then (as opposed to residential property prices).

Everyone needs a place to live, not everyone owns a business. And the fact is its difficult to make money in this country for a small enterprise, with high wages and the general environment.

smccarrick wrote: »

I'd be very interested to know how commercial property is standing up elsewhere in the country- think Portlaoise, Ballinasloe, Galway etc. Whatever about the increase in commercial property in Dublin- its totally mushroomed in many of our provincial locations. Fingers crossed they don't get as hammered as Dublin......

Purely anecdotal evidence here, around half the office units around our Galway office are sitting empty, several of which have become vacant in the last two months, and several more closing up shop shortly, from what the owners tell me. Oddly enough only one of those is in any way property related.

jdivision

johnnyskeleton wrote: »

Commercial purchase prices as opposed to rents. My understanding (although I don't have the statistics to back it up) is that commercial prices became stangant around 2002 and have seen only marginal capital appreciation since then (as opposed to residential property prices).

Given commercial prices rose massively since then I think you're wrong