According to London-based index firm Investment Property Databank (IPD), Irish commercial properties have fallen on hard times due to a combination of low consumer demand and a lack of tenants. This situation arises although the Irish economy has so far managed to avoid falling back into a recession and there are signs of life in the commercial property market.
For investors who are prepared to take on the risk, there are bargains to be had in the current market, which has properties listed at deeply discounted prices. Buyers can realise a competitive yield if they have the stomach for it, and more companies have been prepared to do just that in the last six months. IPD has released figures stating that Ireland has outperformed the UK in the last quarter, pointing to slower returns in the UK market and higher income returns in Ireland for the first time in the past five years.
The news for the retail sector in the Emerald Isle has not been encouraging, however. Areas outside of Dublin have been especially hard hit, as tenants are not willing to take on new space, citing economic uncertainty in the face of high unemployment and low consumer demand. In Cork and Limerick, as well as other areas, rents fell a further -3.0 per cent over the past six months.
While several international retailers have set up shop in Dublin during the past six months, this increase in retail space has not benefited commercial investors in second and third-tier markets in the country. Rents have fallen by over 50 per cent in Cork and Limerick and the average lease length in these two cities is over 20 years. As a result, retail tenants are paying significantly more than they should for space; in some cases, occupiers are paying up to 70 per cent more in rent before they even welcome their first customer into the store.
Outside of the capital there is very little demand for retail space at present from tenants and this is leading to falling values. The positive signs are starting in the central areas of the market and investors can benefit from heavily discounted assets there.
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