Strong year ahead for offices and investments
Seamus Ross, Menolly Group
Changes in the property market over the next 12 months?A reduction in the number of new units being built. Prices will continue to rise, driven by demand and lack of supply .
At what stage will higher interest rates affect the market?I cannot see much effect in the next 12 months. It is an election year, incentives are promised by all the major parties and there is a strong likelihood of changes being made by government to curb the effect of an increase in rates. I recommend that young people take interest-only mortgages to buy their houses and not worry about the principal. Their salaries will increase and dilute the cost of the house over a next of years.
Can demand for new homes and offices be sustained?The jobs being created over the last few years by companies like Intel, Wyyatt, Pepsi, Google and Sean Quinn Direct will lead to higher demand for new homes and offices. The rise in population and the problems within the planning system affecting supply will also help to sustain the demand.
What will be the effects of tighter lending by the banks?It is more responsible lending, making sure people are not exposing themselves to the risk of not being able to pay high mortgages.
Prediction for 2007?Fianna Fail returning to government hopefully with the Progressive Democrats. Longford to win the Leinster Championship and Meath to win the All Ireland.
John Mulcahy, managing director, Jones Lang LaSalle
How do you see the property market changing over the next 12 months?Conditions are generally strong and stock markets upbeat. Inflation is subdued so pressure will come off interest rates. We expect, therefore, there will be a continuing strong demand for business property as companies expand, and grow.
At what stage will higher interest rates begin to affect the market?In the commercial market the interest rate outlook has, to a great extent, been factored in. The euro base rate is 3.25 per cent and the 10-year swap rate is 3.95 per cent, so the market is betting on a fairly benign low interest rate environment. However, as yields have now adjusted, real estate is going to have to "earn its corn" with income growth.
Can the demand for new homes and new offices be sustained?We see the demand for offices increasing. The residential market reactions may be segmented as it slows and moves to more sustainable levels. The higher end of the market is populated by buyers who have a smaller amount of their worth in their homes and are less sensitive to interest rate, employment and market movements.
What will be the effects of tighter lending by the banks?Some reduction in liquidity leading to a need for more equity and mezzanine.
Prediction for 2007?Following Warren Buffet's advice, one should tell the market what you're going to invest in after you have done it! However, I expect commercial property to have another very good year.
Niall Gaffney, investment manager, IPUT
How do you see the property market changing over the next 12 months?After the feeding frenzy of 2006 I believe that investment demand will remain but investors will be more selective in 2007 as interest rates trend upwards. Investment yields are at historic lows and lenders are getting nervous at current value levels. There is likely to be an adjustment in yields as forward funding, joint ventures and structured investment equity will become more prevalent than heretofore in commercial development.
At what stage will higher interest rates begin to affect the market?We are starting to see it already with several developers now considering involving institutional and syndicated private equity in major commercial and residential schemes.
Can the demand for new homes and new offices be sustained?Affordability will be critical to sustaining new home demand levels. The Dublin office market is being supported by an expansion in the domestic professional services sector with the south docks the main beneficiary.
What will be the effects of tighter lending by the banks?A readjustment in site values is likely in 2007. Your prediction for 2007? More of the same for the domestic market but for market turnover and investment returns to moderate considerably with city centre offices and large scale retail likely to provide the rental growth that the market anticipates.
Pat Gunne, managing director, CBRE
How do you see the property market changing over the next 12 months?From 2001 to 2005, property values rose largely on the back of yields contracting against a backdrop of falling interest rates and the "weight of money" factor. The fundamental element driving property value for 2007 will now be rental growth.
At what stage will interest rates begin to affect the market?The interest rate environment across the major markets (euro-zone, UK and US) is very conducive to an active investment market for debt-driven buyers. Even with sterling and dollar interest rates 100 basis points ahead of the euro, property yields in those markets have remained low by virtue of improved rental growth prospects.
Can the demand for new homes and offices be sustained?The amount of tenant requirements on our books gives us considerable comfort in this area.
What will the effects be of tighter lending by the banks?If lending policy is to become more stringent, it will be towards the more speculative segment of property investment.
Your prediction for 2007?The investment market will be very strong in 2007. Land will become a varied market within itself, with prime commercial opportunities increasing in value. In Dublin rents will likely hit €700 per sq m in the city centre, but major corporate requirements will be hotly contested among developers.
Fintan Tierney, managing director, DTZ Sherry FitzGerald
How do you see the property market changing over the next 12 months?Employment growth over the last 12 months has been 100 per cent above the growth forecast. Such growth is showing in the increased demand for offices in the prime locations. One area of change is in the industrial market where lettings in the industrial sector are on the rise, probably as a direct result of increased interest rates.
At what stage will higher interest rates begin to affect the market?Higher interest rates have already affected the market. It is anticipated that there will be two further rate increases but I feel that this has been anticipated by the market.
Can the demand for new homes and new offices be sustained?Our research shows a requirement for 60,000 units of new homes per annum on a long term basis. For offices in Dublin, the annual requirement is for 150,000-170,000sq m which looks as if it will remain quite strong.
What would be the effects of tighter lending by the banks?There is no evidence of tighter lending but there is more scrutiny of proposed deals. Considered valuations and development appraisal advice will be essential by the banks in assessing proposals.
Your prediction for 2007?The investment market will remain buoyant with significant demand not being matched by supply. The industrial market will remain steady while the retail market should see the effects of SSIA spending and population growth.
Nicholas Corson, director, Finnegan Menton
How do you see the property market changing over the next 12 months?The capital growth on offices has been 26.2 per cent compared to 24.3 per cent and 17.6 per cent for retail and industrial respectively. It will be much the same for 2007. Retail will go into a holding mode in anticipation of major planning applications. The residential market will bounce back after the Budget and the biggest change will be that vendors' expectations will be more in line with purchasers' buying power.
At what stage will higher interest rates begin to affect the market?Investors are already building in expectations of further increases and, with five-year and 10-year fixed base rates around 4 per cent, a low interest rate environment is set to continue. A 0.5-0.75 per cent increase may impact on affordability in the residential market but this is likely to be limited to first-timers.
Can the demand for new homes and new offices be sustained?Yes, but to different degrees. The demand for new offices will be strong, focused on the city centre, Luas and Dart lines. Demand for new homes is likely to rebound at more sustainable levels. New starts will adjust to demand.
What will be the effects of tighter lending by the banks?Any tightening of lending is likely to be limited to the affordability calculations of first-timers and on land speculation projects.
Prediction for 2007?Bumper year for the office and investment markets. The residential market will get back to business in the spring.
Ann Hargaden, investments director, Lisney
How do you see the property market changing over the next 12 months?The residential market slowed dramatically in the last quarter. A little reality has to set in before the market starts to move again in this sector. This will impact in the same way in the commercial sector but not to the same extent. There is a shortage of supply of good commercial product and this will drive the market. Yields may move out slightly but rental growth should keep values improving.
At what stage will higher interest rates begin to affect the market?The base interest rate is 3.25 per cent, up 1.5 per cent since the start of 2006. This is affecting the market and yields are moving out to reflect increasing rates for most commercial property. This has not affected "trophy" properties as yet. If rates move significantly again in the new year, it will have an impact on yields across the board.
Can the demand for new homes and new offices be sustained?Yes, but it will depend on "location, location, location". Transport is crucial to demand. Demand will be sustained but only in certain locations.
What would be the affects of tighter lending by the banks?There has been a lot of speculative land sales and the banks have tightened lending in this category. This will stabilise values.
Predictions for 2007?The commercial market is relatively robust. The residential market has slowed but should gain momentum again in the new year at a more sustainable level. Property still looks like a safe bet.
Paul McNieve, managing director, HOK
How do you see the property market changing over the next 12 months?I see the market continuing to perform very strongly but, now more sustainable, as froth has been taken off the market by the recent interest rate increases.
At what stage will higher interest rates begin to affect the market?Residentially, rate increases have combined with confusion over stamp duty to take the heat out of the market. Commercially, developers are more cautious about long-term projects and land.
Can the demand for new homes and new offices be sustained?Yes. All economic forecasts are for more people, more jobs, higher incomes and more spending in 2007 - this all boosts demand for residential and commercial property. I believe the supply of new homes may be significantly lower next year and some of the biggest tracts of land in Dublin have already hit the market. There are large corporate requirements in the market for offices and there is a shortage of supply and availability in Dublin 2 in particular.
What will be the effects of tighter lending by the banks?I don't think that the occupier market will be affected much more and any affect may see the banks in less of a hurry to lend on long term landbanking or secondary development projects.
Your prediction for 2007?Boom conditions to persist and with one more rate rise predicted, the market will be healthy and sustainable.
