AKC News // 2008 Outlook What does the future hold?

The Irish Times sought the view of property experts:

Pat Gunne, Managing Director, CBRE

Are the good times over? If you think you are beaten you are is the start of an unrelated poem but very relevant to all in today's market. We have an underlying economy which by any standards is good, and this is the foundation for all investment classes - not just property. Nevertheless, we are at risk of talking ourselves into a difficult period many have done so already. Personally, I believe it will be a time for readjustment and good buying opportunities will again become available.

What changes do you expect to see in commercial property over the next 12 months? Funding of property will respond to the temporary banking crisis and loan-to-value ratios will fall while margins increase. Essentially risk, a word of the past, will re-emerge as an important consideration and will be priced accordingly.

What will be the best performing sector next year? Any sector which took the price adjustment on the chin in 2007! Prime in all sectors will outperform secondary where there has been a significant readjustment.

Where will the best investment opportunity be in 2008? Central London offices will represent good value again.

What is the most important trend for the future? In times where debt buyers are still dominant, especially in Ireland, the interest rate trend will always be key, and it's going in the right direction!

Ann Hargaden Investments Director, Lisney

Are the good times over? We have seen a calming of the markets, driven by a more cautious banking world. There is still a lot of cash driving demand but with a more cautious attitude. The good times are not over, the times of jumping into investment without a thought are!

What changes do you expect to see in commercial property in the next year? Funding new speculative development will become more difficult and, as a result, developments that are up and running will perform very well. I expect the occupancy rate, particularly in offices, to increase leading to a shortage of space, particularly in the city centre. In the retail sector, as more new centres open, there will be some impact on the older shopping centres. Industrial has been relatively steady and it will continue at a steady pace over the coming year.

What will be the best performing sector next year? Offices. There are a number of active occupier requirements, particularly for Dublin city centre, and this should drive the market. Developers with new space available within 18 months should reap the benefits of this.

What will the best investment opportunity be in 2008? The best opportunity will be the 1960s/1970s vacant office blocks in Dublin city centre in an area capable of much greater density! America's faltering economy is likely to offer some opportunities.

What is the most important trend for the future? The development of the "green" building. Legislation is likely to drive this.

Angus Potterton, Managing Director, Savills HOK

Are the good times over? Activity across all sectors of the market has slowed. Investors are finding it difficult to access funding and are being more cautious. We expect these conditions will ease when the extent of losses relating to the sub-prime mortgage market have been fully established by investment banks. The current environment offers opportunities to investors in a position to take advantage of them.

What changes do you expect to see in commercial property over the next 12 months? Following a record year in terms of take-up we expect activity in the office sector to ease. But we do not expect pressure on rents - there is no evidence of a build up of stock in key central locations. We expect more competition in the retail sector, where location, design and the calibre of tenants will be critical. We expect yields to move out and for prices to soften in some sectors.

What will be the best performing sector next year? Offices and retail to remain the star performers, particularly in prime locations.

Where will the best investment opportunity be in 2008? Well located development land (within or close to the M50, close to the M1 or the airport offers long-term investment opportunities). Well-located product in prime US cities offers opportunities.

What is the most important trend for the future? Joint ventures between landowners, developers and equity partners. More emphasis on high quality mixed-use schemes.

Fintan Tierney, Managing Director, Sherry FitzGerald

Are the good times over? 2008 will certainly be different to the last few years, but it's all relative to those of us with long memories. When compared to the early 1990s it is a radically better marketplace. There is a lot of cash out there looking for safe homes in an economy that is continuing to grow. There are also opportunistic investors waiting to move when they see value.

What changes do you expect to see in commercial property over the next 12 months? Demand for offices will not be as strong with the financial institutions in particular unlikely to be increasing their office accommodation in the short term. Good retail sales performance will see continued expansionary demand in the retail sector.

What will be the best performing sector next year? It will be in retail.

Where will the best investment opportunity be in 2008? With residential rents continuing to grow and capital values likely to bounce back during the course of the year, the timing is right to buy development land to catch the upswing for residential development, particularly on good public transport links.

What is the most important trend for the future? Cash and liquidity is key.

Sean Mulryan Managing Director, Ballymore

Are the good times over? 2008 will be very different to 2007. Many people will be impacted by the recent stock market collapse and banking crisis. There will be a correction in some areas of construction but this doesn't mean the good times are definitely over in Ireland.

What changes do you expect to see in commercial property over the next 12 months? You will really need to know your business to do well in 2008. It will not be a year for the faint hearted and many might take a back seat and leave it to the people that are in the commercial property business for the long haul.

What will be the best investment opportunity in 2008? Well located mixed-use developments will continue to return good yields. However, location is really crucial.

Where will the best investment opportunities be in 2008? The correction in housing was inevitable in 2007. First-time buyers will see value for money in house prices towards the middle of 2008. Retail will continue to be strong and there will be opportunities in this area.

What is the most important trend for the future? The single most important trend for the future must be our focus on alternative sources of energy and how sustainability can be factored into the planning of future developments. The whole balance of mankind's relationship with the environment and our attention to it will be the most important trend for the future.

Niall Gaffney Chief Executive, IPUT

Are the good times over? The broad macro economic fundamentals of the Irish economy are sound and possess characteristics that traditionally would be supportive of commercial property activities. Despite the wave of negative sentiment washing over the capital markets, we are in a cooling off period and not a collapse.

What changes do you expect to see in commercial property over the next 12 months? The current buyers' market to intensify where opportunistic cash buyers will dominate. Prospective commercial tenants will increasingly hold the upper hand in negotiations and transactions will be scarce and even more drawn out.

What will be the best performing sector next year? Pockets of the office and retail markets. Prime city centre offices and major town centre retail will continue to offer positive growth potential.

Where will the best investment opportunity be in 2008? City centre development sites or city centre office investment opportunities with short term income/development potential. The aforementioned two sectors are counter cyclical opportunities for cash-rich buyers as it will be more difficult to fund such investments in the 2008 investment cycle.

What is the most important trend for the future? Financial markets stabilise in early 2008 and begin to show signs of recovery into mid-2008. Confidence levels need a boost.

Nicholas Corson Director, Finnegan Menton

Are the good times over? No, the commercial investment market will provide solid positive performance and continue to be sought after by investors willing to take a medium term view. While the residential market has stalled, the commercial market has performed well.
Occupational demand is still strong across all sectors.

What changes do you expect to see in commercial property over the next year? 2008 is likely to start steady, with strong underlying demand, scarcity of stock and an eye on financial markets. Interest rate cuts of up to 0.5 per cent in the second or third quarter will show that the upward cycle is at an end. The biggest change in 2008 will be the tightening of lending criteria for all but the larger investors.

What will be the best performing sector next year? Prime retail is likely to take over from offices as the best performing sector. A good punt is the suburban office sector.

Where will the best investment opportunity be in 2008? The key is to be ready to move quickly when the right opportunity arises. Pricing is likely to be realistic. With a supply deficit in the Irish market, some of the best opportunities may be found further afield.

What is the most important trend for the future? Active management!
The days of relying on yield compression are over, instead capital growth will be achieved through rental growth and active management.

Source: The Irish Times

Date : 28-11-2007