Market past bottom where to from here?

Market past bottom where to from here?

Postby PVC King » Wed Apr 14, 2010 12:17 pm

Dublin office vacancies fall but still high
Wednesday, 14 April 2010 11:58
Property consulting group CB Richard Ellis has said vacancies in Dublin's office market fell in the first three months of this year for the first time in two years.

CBRE said take-up of office space continued to rise, while the amount of new space coming on to the market was limited.

The company said the overall Dublin office vacancy rate fell slightly from just under 23.5% to 23% in Q1 of this year, though it said this remained high compared with similar European markets.

AdvertisementThe data compiled by CBRE suggests that almost 25,000 square metres of Dublin office space was taken up during the first three months, a rise of 26% compared with the final quarter of last year. Just over half of this was in the city centre.

CBRE says just under 32,000 square metres of offices is under construction and due to be completed next year, but it is difficult to see any more office space being added beyond this. The report says office rents in Dublin have dropped 44% from their peak.


Clearly real estate markets in Dublin have now gone beyond the naidr point with a select number of retail requirements emerging. In terms of market direction is a City of London scenario where new developments are in demand due to occupiers leveraging pricing to get better space or will occupiers remain in situ and negotiate merely on price at lease expiry? From an architects perspective clearly the former would be the preferred option as a stable market may see the emergence of a 3-5 year development pipeline being formulated.
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Re: Market past bottom where to from here?

Postby jimg » Wed Apr 14, 2010 4:41 pm

PVC King wrote:Clearly real estate markets in Dublin have now gone beyond the naidr point with a select number of retail requirements emerging. In terms of market direction is a City of London scenario where new developments are in demand due to occupiers leveraging pricing to get better space or will occupiers remain in situ and negotiate merely on price at lease expiry? From an architects perspective clearly the former would be the preferred option as a stable market may see the emergence of a 3-5 year development pipeline being formulated.

If you have confidence in your market view, then now's your chance to make a fortune and be in a position to retire by next year. What's holding you back? If direct investment is a little too much work for you, then open a spreadbetting/tutures account (I can recommend igindex - low spreads and a wide variety of books) and go long with every penny of your net worth on some of the macro indicator/commercial property indexes.

I mean why waste your time even posting this when the market "clearly" has only one way to go and you could be using your time to turn your belief into big money? If I "knew" which way a particular market was going (or if I knew next week's lottery numbers), I'd be rushing into the market with every bit of cash I had or I'd be running to the nearest spar to buy a lottery ticket instead of massaging my ego by posting about it on an internet forum.

The market is the market; if it determines something is worth €X, then this simply means that there is equal weight behind the people who believe it is worth more than €X as there are those who believe it is worth less than €X. A simple concept but one seemingly beyond those who anthropomorphise financial markets.
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Re: Market past bottom where to from here?

Postby PVC King » Wed Apr 14, 2010 5:12 pm

I recently bought Irish bank shares for the first time in almost 2 years as my way of leveraging the recovery in the Irish economy; given the large lot size that prime commercial property represents direct investment is not an option to me and given that the quoted commercial property unit trusts mostly feature very secure income they do not present the type of returns that are on offer elsewhere; the core global markets are recovering at a pace. I have a strong feeling that Ireland will not be left behind.

The CBRE report is highly important as it highlights that take up has increased and that in the absence of a pipeline of new stock reaching the market that vacancy levels are in fact falling albeit slowly. You correctly identify sentiment or demand but make no mistake the supply side of the equation will take on a larger and larger importance; this was the tipping point in London earlier this year when an analysis of not just vacancy rates was undertaken but also what type of space was vacant; the clear finding was that there was literally no grade A space available that wasn't pre-let and that although space was available it was in the main very poor space with poor energy ratings in poorly fitted out buildings.

There is a natural churn in any property market as occupiers move out of 10-25 year old buildings at lease expiry; the real question is what proportion of these firms will take new and vacant space and what proportion will take a new lease in their existing premises to secure lower rents. It is a trend that will determine the output of the construction sector and associated professions for the forseable future and will be a vital tool in business planning for anyone in the industry. Concentrate on sentiment alone at your peril..
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Re: Market past bottom where to from here?

Postby jimg » Thu Apr 15, 2010 2:29 am

Ok, I'll file this with your predictions about a year ago that the worst was over for the Irish economy and that the banking system had been stabilised. I also have a vague memory of you claiming that McNamara and a bunch of other big name developers/property investors and the DDDA were in fine financial shape around a year ago too? Apologies if I am confusing you with someone else but I don't know of anyone else on this board who has been consistently talking up the economy, property market and Irish banks over the last couple of years.

I'd also like to apologise for my last outburst against you in the NAMA discussion which I've regretted as it was pretty spiteful. My excuse is that I didn't appreciate being labeled ill-informed and ignorant when I rubbished the then intended 30% discount NAMA was going to apply to loan collateral valuation as being ludicrously generous to the banks.

To put it simply, I do not believe that your economic or financial analysis has any predictive value whatsoever. In fact I believe (albeit from vague memory) that your record in this area has been almost consistently wrong.
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Re: Market past bottom where to from here?

Postby PVC King » Thu Apr 15, 2010 7:46 am

Good to see you as always you deviate from the topic under discussion and descend into personal attacks as always; this coming from the person who recommended spread betting indexes as a valid investment method versus a sure fire way of handing all your cash to glorified casinos.

I stand by my remarks on NcNamara in comparison to his peers he has always behaved in a dignified manner; examples of his investments such as the Dept of Transport building in Victoria SW1 London show that he bought quality for his portfolio and it is widely regarded that he along with a select number of contractors operating in Dublin built projects to a very high standard. On the DDA site I have no doubt that the site will not be sold at current market value and that in time it will be valued at €50k - €100k per residential unit. McNamara and Quinlan were not the only people to get carried away in European investment it was simply an over-heated market and unlike Liam Carroll they knew the difference between quality and secondry stock: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7097445.ece

To get back to the point I would ask you

1. With no future supply how will rents fall further?
2. With limited construction employment how can the sector fall further?
3. With cleansed loan books and robust capital reserves why are Irish banks more likely to fail or decline in value than their peers?
4. Why would a professional services firm not trade up if they can secure a good letting deal 0n better terms than a 2005 or 2006 rent review level?
5. Compare Dublin rents across the IPD European index; how would you assess compititiveness?
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Re: Market past bottom where to from here?

Postby missarchi » Thu Apr 15, 2010 12:16 pm

PVC king lets see your 1 year predication for bank shares to the day
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Re: Market past bottom where to from here?

Postby PVC King » Thu Apr 15, 2010 12:28 pm

Prediction 1; they (AIB/BoI) will be a lot less volatile
Prediction 2; they will outperform the Eurostox 50 Index by at least 10%

Caveats

1. That predicted disposals are carried out on the terms envisaged
2. That the World economy continues to recover
3. That capital raising proves as successful as recently in the case of BoI; the Prudential rights issue due in May is the one to watch
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Re: Market past bottom where to from here?

Postby jimg » Thu Apr 15, 2010 7:05 pm

PVC King wrote:Good to see you as always you deviate from the topic under discussion and descend into personal attacks as always;

I'd ask you to point out where in that last post I descended into personal attacks. If not I expect you to retract this. I was careful to attack your record on economic and financial predictions and not attack you as a person.

In fact, I went out of my way to actually apologise for getting angry in my last exchange with you despite the fact that you'd completely dismissed my point as being ignorant (that a 30% discount on peak values was la-la land valuations) even though I've been vindicated by the EU's input into the NAMA process.
this coming from the person who recommended spread betting indexes as a valid investment method versus a sure fire way of handing all your cash to glorified casinos.

This sentence doesn't even parse grammatically but the gist seems to be that you don't understand the futures market or the simple relationship between the value of a future and that of the underlying or that a "financial spread betting" service is nothing but a futures brokerage (except that by calling it "betting" your gains are tax free thanks to McCreevy).

As someone who apparently delves into the market to buy bank stocks, you might actually learn something here; you can get the EXACT same exposure to gains or losses (except it is tax free and the fees are less) by buying a future via a spreadbetting company.

I stand by my remarks on NcNamara in comparison to his peers he has always behaved in a dignified manner; examples of his investments such as the Dept of Transport building

Now you really are fantasizing. Where did I ever question McNamara's dignity or integrity? I simply questioned YOUR claim last year that all these guy were completely sound financially. They are now all bust or close to it. You can wriggle and twist and try to veer off the subject all you like but that is what you claimed and I simply pointed this out as an example of your previous history of financial analysis and predictions.

To get back to the point I would ask you

1. With no future supply how will rents fall further?
2. With limited construction employment how can the sector fall further?
3. With cleansed loan books and robust capital reserves why are Irish banks more likely to fail or decline in value than their peers?
4. Why would a professional services firm not trade up if they can secure a good letting deal 0n better terms than a 2005 or 2006 rent review level?
5. Compare Dublin rents across the IPD European index; how would you assess compititiveness?

Briefly: 1 - limited demand; 2 - dunno much about the sector but looks like it cannot go any lower; 3 - we've only seen the fallout from the collapse in commercial property - the next hit will be unemployed individuals and their mortgages; Irish banks have grown inefficient and never cultivated the skills required to generate returns on capital except by making easy money during a property/credit boom which no longer exists and will not for a generation; Irish banks are not known for being innovative so I cannot see where future profit streams will come from - payments processing (about the only thing they can be trusted with) makes very modest profits; 4 - companies will trade up all right but will pay less rent, the belt tightening isn't over - what's good for tenants is bad for landlords and vice-verse so you're actually arguing that the commercial property sector has more pain to experience; 5 - Ireland/Dublin will struggle to compete because the government splurge and mismanagement of the banking crisis will leave it with an enormous debt to service which will require huge tax increases; in the absence of free money it's going to cost 4.5B a year to service the current level government debt - with rising unemployment, the income tax take is down around the 10/11B a year mark; the national debt (ignoring the Enron-type accounting which attempts to hide it) is set to double or triple - do the math.

Anyway I'm not going to engage in some pedantic shit with you. My contribution to this thread was a request that you admit that you've been spectacularly wrong with your "predictions" over the last two years:
  • the Irish banks had been stabalised last year (strange sort of stability that requires 20/30 billion more government money to stop them going bust)
  • the worst was over for the Irish economy in general this time last year (enough said)
  • that big name property developers like Quinlan and McNamara were 100% sound financially (Quinlan has done a legger out of the country and McNamara is battling backrupcy in the courts)
  • that the DDDA was sound financially (I think I trust it's new CEO more than you when it comes to pronouncements on the soundness of the DDDA.)

And that's just the stuff of yours I remember. And by highlighting these woeful examples, I'm accused of "deviating into personal attacks". Get a f*cking grip, man up and admit you've been spectacularly wrong with your snake oil financial predictions.
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Re: Market past bottom where to from here?

Postby PVC King » Fri Apr 16, 2010 10:04 am

With that analysis I'm amazed you are still in the country; you seem to make Ireland look like Greece or Iceland. I have no issue defending Quinlan, I have never said that Quinlan, McNamara or anyone was solvent at todays valuations; what I did say was that what they bought was higher quality than average and that when the valuation uncertainty clears that they will be ok if patience is shown with their holdings. Now is just about starting to become to sell UK assets as there are more buyers than sellers; any asset sold this time last year would have sold for dramatically less than would be acheived today. In Ireland there is probably another year or two to go before investment yields come back to IPD averages but as I have always advocated selling prematurely solves nothing other than crystalising paper losses into actual losses. Equally I see value in the long term in the Irish Glass Bottle site; no question a public authority should not be investing in development land but the subject site is located close to Strand Road Dublin 4 has views over Dublin Bay and is proximate to the South Docklands; when residential markets recover units at this scheme will have a significant premium to Dublin averages.

You assertion that better terms for tenants equate to landlords having further difficulty is nonsense; each investor is holding a tenancy schedule that the bank values at net present value which is based on market rent clearly there are many properties where the rent reserved is significantly higher than what is acheivable in the market but this scenario is fully priced in. As supply dwindles rents will at worst stay where they are and for quality stock start to converge on IPD averages; this is not some snake oil prediction it is simply the way the market has always worked Internationally.
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Re: Market past bottom where to from here?

Postby jimg » Fri Apr 16, 2010 10:52 pm

Don't make me use the search function and start quoting you.

Oh I see; if it weren't for the unfortunate reality of "today's valuations", McNamara would be in fine shape which means you were in fact correct? If my aunt had balls etc.

And no sort of convoluted illogical bluffing can justify dismissing the claim that what's good for buyers of a service is bad for the sellers and vise-verse as being ludicrous. It's not only NOT ludicrous, it's so obviously true that a child can appreciate it. Anyone who uses the word "market" in a sentence but doesn't appreciate this simple and fundamental fact is a bluffer.

You can look at my location; I made plans to leave the country in the weeks following the issuing of the bank guarantee having done some quick calculations particularly on the growing state deficit and state of Anglo's balance sheet. I was gone 4 months later. Many thought I was being hysterical but the economic reality has actually turned out to be worse than I expected. I know for a fact I would be out of work in Ireland given my profession.

Ireland will end up with a staggering mountain of debt and a weak tax base. It isn't difficult to crunch the numbers. This makes me sad and angry because some truly great things had been achieved in the country and I'd much rather living close to friends (even if many are crippled by negative equity) and family.

But what really pisses me off are the clowns who for the last 5 years have peddled "soft landing" theories, who declare the "bottom" of various markets at regular intervals and who berate people for "talking down the economy". If the harsh reality had been tackled a little earlier (instead of, for example, advising economists who predicted melt-down to commit suicide or dealing with the banking crisis by claiming it was just a liquidity problem which would blow over instead of the solvency crisis which it was), the country might have had some chance. This happy-clappy fingers-in-the-ears approach to the country's problems has actually multiplied its difficulties. At least most have come out of denial but it seems you're still intent on peddling this baseless "analysis" and your proven-to-be-bollox predictions of an imminent silver lining for years.
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Re: Market past bottom where to from here?

Postby missarchi » Fri Apr 16, 2010 11:45 pm

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Re: Market past bottom where to from here?

Postby PVC King » Sat Apr 17, 2010 9:30 am

jimg wrote:Don't make me use the search function and start quoting you.

Oh I see; if it weren't for the unfortunate reality of "today's valuations", McNamara would be in fine shape which means you were in fact correct? If my aunt had balls etc.

And no sort of convoluted illogical bluffing can justify dismissing the claim that what's good for buyers of a service is bad for the sellers and vise-verse as being ludicrous. It's not only NOT ludicrous, it's so obviously true that a child can appreciate it. Anyone who uses the word "market" in a sentence but doesn't appreciate this simple and fundamental fact is a bluffer.

You can look at my location; I made plans to leave the country in the weeks following the issuing of the bank guarantee having done some quick calculations particularly on the growing state deficit and state of Anglo's balance sheet. I was gone 4 months later. Many thought I was being hysterical but the economic reality has actually turned out to be worse than I expected. I know for a fact I would be out of work in Ireland given my profession.

Ireland will end up with a staggering mountain of debt and a weak tax base. It isn't difficult to crunch the numbers. This makes me sad and angry because some truly great things had been achieved in the country and I'd much rather living close to friends (even if many are crippled by negative equity) and family.

But what really pisses me off are the clowns who for the last 5 years have peddled "soft landing" theories, who declare the "bottom" of various markets at regular intervals and who berate people for "talking down the economy". If the harsh reality had been tackled a little earlier (instead of, for example, advising economists who predicted melt-down to commit suicide or dealing with the banking crisis by claiming it was just a liquidity problem which would blow over instead of the solvency crisis which it was), the country might have had some chance. This happy-clappy fingers-in-the-ears approach to the country's problems has actually multiplied its difficulties. At least most have come out of denial but it seems you're still intent on peddling this baseless "analysis" and your proven-to-be-bollox predictions of an imminent silver lining for years.


A valuation is only a snapshot of what is acheivable on a given day; the purpose of NAMA was to remove the context of a market where there was no lending to underpin a sector that has in the recent past been based on leverage of 70% plus. It was always going to be a medium term project. You are gernerally better off with the people who bought the assets and had detailed knowledge of them having control rather than simply selling them into a market where all observers agree is below its medium term level. Signs in London are that prices are now at medium term levels; the levels of 2005/2006 will not be seen again for a very long time in terms of yield compression but rents are higher than those of 2005 for grade A space deliverable in 2010/2011. When you are advised by a financial advisor that an equity fund is a 5-10 year investment you do not liquidate it at the first sign of trouble you continue with the strategy you intended.

Fair enough you have left and as locations go Zurich is a pretty good spot to be in the financial industry. The choice of this location does however clearly display that you have an above average level of risk aversion; it is a location well outside the sphere of influence of the anglo-saxon model beyond recent attempts to lure hedge funds.

Your view is however overly pessimistic; yes there is a large fiscal hole; yes the unemployment figures are unimaginable when viewed with those of a few years ago. However the government has tackled the deficit in a much more credible manner than say the UK, unemployment is starting to stabalise and unlike many other countries there has been a sustained period of deflation across CPI, asset markets and service costs. What made Ireland attractive in the early 1990's was a mix of a highly educated workforce seeking employment in a weak market being combined with cheap service costs in areas such as property, transport etc. What made Ireland uncompetitive was simply the reversal of these trends into a workforce of primadonnas when it came to pay and a property sector who thought rents should be on a par with Mayfair / Knightsbridge.


19 months after the bank gaurantee scheme was mistakenly launched the perception is that Ireland is a place you can do business, the government is one that does not let local interests screw foreign businesses: assets are perceived to be safe; rents have fallen below Edinburgh which is probably the most comparable competitior city and transport connections are plentiful and cheap in terms of serving a European territory. If the opposite were true why are key employers such as IBM still setting up top end projects.

I have never said that the levels of 2004-2006 will ever come back and I've no doubt the bond markets will be keeping a much closer eye on any lending that has the words Real Estate development as the purpose of the loan. But having enjoyed an unsustainable rise in asset values it is felt that an over-correction in prices has occured in many cases. Clearly the absence of supply will underpin the market going forward; it is a fact that many occupiers have a preference for better at an equivelent cost to current cost if they occupy dated buildings.

I would be very interested to see your predictions on office vacancy levels for 12 months time, unemployment levels for 12 months time and deficit as share of GDP for 12 months time.
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