The Jones Lang LaSalle Irish Property Index overall return and capital values were positive for Q4 2011. This was due to the reduction in stamp duty by 4% in the December 2011 Budget, a change which would technically move values up by +3.8%, all other things being equal. In fact property values rose by +1.2% across the portfolio, suggesting that the underlying fall in values would have been -2.6% without the stamp duty change. This quarter ends a year of continuing falling value, with a total -10.1% reduction during 2011.
The overall return for the Index was assisted by the positive capital value movement at the end of the year to +3.6% in Q4, however year-on-year returns were -1.0%. Although the year-on-year figure is negative, it is a significant increase from results for the previous quarter’s year-on-year return which stood at -5.0%.
Income in the portfolio (which is made up of real properties) is down -1.1% compared to the previous quarter and -7.2% in the year. Rental values declined by -10.2% in 2011. In terms of specific sectors, the capital values for all three sectors increased between Q3 and Q4 2011 and ERV, although mostly negative, performed better across all sectors compared to last quarter, with the Industrial sector showing slight positive growth (+1.1% increase).
According to Hannah Dwyer, Research Analyst at Jones Lang LaSalle, “This is the first time since Q3 2007 that overall capital value of commercial property in Ireland has increased, with the Index showing +1.2% growth in the quarter. This is a technical increase due to the Government’s changes to stamp duty acquisition costs, which ameliorated an underlying fall in values.”
She also added that “Although the increase in capital values appears positive, we still can’t ignore that capital values overall have fallen by -63.8% since the peak. Plus, with remaining economic uncertainty across Europe, it would be naive at this stage to assume this shows the market has started recovery. There are however signs of some stabilisation in the pace of fall, with a lot of bad news already priced in”.
Another important legislation that was clarified in the Budget is the Government’s decision on retrospectively banning Upward Only Rent Reviews (UORR) in existing leases. The property market performed poorly last year as it paused for almost 12 months whilst investors and occupiers awaited clarity on their proposal and as a result we are confident of a resumption of market activity during of 2012 which should help to establish market-led capital values.