Killian O'Higgins - Managing Director, Sherry FitzGerald
As we enter 2001, interest rates, construction costs, land values and the equity markets are in mind. The SCS/IPD Irish Property Index is likely to be approximately 25 per cent (12 months to Q3 2000 - 28.21) whereas the equity market will probably be less than 10 per cent. The equity markets are a general barometer of economic sentiment. The loss of faith in dot com companies will affect the Irish economy. We are likely to see the demise of companies which have nothing but an idea, concealing a lack of substance behind high profile offices at high rents. They never had to make the traditional assessment of the economic impact of decisions, i.e. can we afford it?
During the year, we saw the end of the virtuous virtual circle of rising rents and falling yields, which has proved a double whammy for property. Returns will depend more on income growth than was the case in recent years. Rises in construction costs will lead to cost push inflation in suburban rents; this may be tempered by the completion of space in excess of market demand. Conservative lending policies will prevent over development. Those with sites must develop to repay borrowings if nothing else; that will require further loan advances and the value of the tenant's covenant will increase as developers seeks pre-lets prior to construction. Demand is still very strong in the city centre and there is a continuing shortage of supply. Indigenous companies are likely to make a major mark on the office market this year.
Ann Hargaden - Director, Lisney
This is a hard one to call for the first time in six years. Lower forecasts of economic growth, higher forecasts of inflation and interest rates seem to indicate that there will be a levelling off in property values during next year. This is combined with a severe scarcity of supply of space, particularly in the office sector. The large volume of space planned and with planning permission in the suburbs and docklands is highly unlikely to proceed on a speculative basis all at once. The banks and many of the institutions have retracted from the funding of speculative schemes, and it appears that there will continue to be a general scarcity of space as developers become loathe to commence on site unless they have a prefund or a pre-let. This should drive rents up even further for a while, but this increase may be combined with increasing yields due to the interest rate factor, and it appears that both increases may lead to a reduction in growth. However, I do expect a continuation of growth, although at not as great a rate as before.
There is a large volume of cash in the economy, and with stock market performance on the slide, a number of investors will turn back to the "old reliable" - but I expect that a more cautious approach will be adopted.
John Finnegan - Managing Director, Finnegan Menton
I predict that commercial property will continue to be a strong performer in 2001. The best performing sector will again be city centre offices where the demand will be for well positioned, quality buildings. The number one criterion when considering relocations will be staff considerations. All the key fundamentals which drive property remain extremely favourable and the outlook for 2001 is excellent. The growth in the economy is fuelling the current unprecedented demand for commercial space. The news on interest rates is that long-term base rates look to have topped out. The current rates are historically low and it is reassuring to see that the spread between one-year and 10-year money is only 60 points (one year, 5.1 per cent, five-year, 5.2 per cent and 10year, 5.7 per cent). The investment market will once again see a shortage of opportunities for prime properties with the trend of developers holding completed developments continuing. Commercial property will remain high on the "buy list" of all fund managers and private investors, who will continue to compete keenly for the few opportunities that come available.
Pat Gunne, Managing Director, Insignia Richard Ellis Gunne
2000 saw the third year for property as the best performing asset, with total returns expected to be in the region of 28 per cent. Judging by the expected interest rate curve for 2001, together with the uncertainty surrounding the equity markets, I expect 2001 will be no different. The big issue that has challenged this sector over the last couple of months is bank funding, and there is no doubt that the availability of finance for speculative development has been reduced when compared to previous years. Notwithstanding this, the core market remains strong, and tenant demand across all sectors is still very favourable. Continued expansion from existing companies in Ireland, together with inward investment from corporate occupiers abroad, especially the US, should ensure property demand levels are maintained for 2001. Also, it is likely that there will be continued focus towards the BMW regions as corporate locations. Assuming the economy can cope with today's pressures, the market will continue to be buoyant throughout 2001.
John Moran, Investment Director, Jones Lang LaSalle
The trends emerging in the investment market in recent months are likely to continue into 2001. The marginal softening in overall returns to 26 per cent this year (compared to almost 30 per cent in 1999) will probably be followed by a further decline in the next 12 months. These returns have been exceptionally strong. Demand remains strong, both from companies seeking prime office and retail space and from investors for quality product. The domestic investment market has experienced enormous growth in the last five years and had been starved of product. However, there has been an increase in supply in the last quarter, leading to a sense of normality returning to the marketplace. More traditional investment criteria are returning to the market: as a result, for instance, there has been limited activity in prefunding. The investment market next year will be driven, as usual, by economic factors and the supply/demand equation in occupational markets. With curbs by banks on development finance, constraints on building costs, and yields as low as they are, it should be a steadier and more normal market than we have experienced in recent years.
