LACK of activity in the development land market, particularly in the past 12 months, has compounded the rapid fall in values of 75 to 90 per cent between 2008 and 2010, according to the latest market report from estate agency Savills. It says that the continued weakness in demand for all property types is pushing even prime land values back to prices last seen in the late 1990s. Many prime locations are now estimated to have fallen in value by over 80 per cent.
Joan Henry, head of research at Savills, says construction and sales activity have come to a virtual standstill with activity being driven almost entirely by lettings. The Dublin office market would see only 12,000sq m (129,167sq ft) of space completed in 2011 while no new retail space had been or would be started this year.
It was currently uneconomical to build any industrial premises and in some instances values were less than the cost of building. The low level of activity has compounded the downward pressure on both the demand and price achievable for commercial land. Ms Henry estimates that an acre of land in “the primest of Dublin locations”, D4 – would fetch at best between €2 million and €4 million in current market conditions.
The Savills report says that the residential land market has come under increasing pressure from the fact that new house completions are at their lowest quarterly levels since 1975. This along with a lack of confidence and funding is keeping a tight lid on demand for both new and second-hand homes.
The second half of 2010 and the first few months of 2011 have seen a further reduction in the level of offers for sites with the exception of a very limited number of small infill opportunities. One exception was the sale by Savills of 4.4 acres of prime land at Glenamcuk Road, carrickmines, for €3m at the end of 2010. There has been an 85 per cent drop on prices achieved during the peak of the market.
The trend seen in Dublin was even more pronounced around the country where both demand and values were down significantly. In many cases, values were back to agricultural land prices, depending on location.
The report says there is virtually no funding available from the banks to purchase and develop new sites or to finish off existing sites where house and apartment prices were below cost. Because of this, the number of receiverships was continuing to increase
Savills says a recovery in the land market cannot happen ahead of a recovery in economic growth and a strong recapitalised banking sector. Nama’s role in ensuring recovery cannot be underestimated and recent indications that the agency will take an active role in increasing activity will play a key role in boosting both activity and confidence this year and next.
The report says that negative site values are further reinforced by the fact that current market values of second-hand stock is well below the replacement cost, meaning there will have to be a substantial recovery in values before there is any prospect of new housing development. “Therefore we do not anticipate there being any major speculative development for the next five to seven years from developers or investors.”
Ms Henry says the drop in land values across the board presents opportunities for cash buyers and those who can get funding to avail of prime sites.
