According to a report by Capital Economics, the Irish commercial property sector will not see positive rental value growth until 2012, at the earliest, despite Ireland’s economy exiting the recession with economic growth of +0.3% in Q3 2009.

Capital Economics believes that rental values will remain under pressure in the near-time. They have already fallen by -17.5% in the retail and industrial sectors and almost -40% in the office sector. These falls are significantly higher than the rest of the Euro-zone and Capital Economics believe that approximately 70% of the overall correction has now happened.

Occupier demand for office space has fallen dramatically, and according to CBRE in the Q1-Q3 period of 2009 office take up in Dublin was almost 60% down on the same period in 2008, with the vacancy rate effectively doubling from 11.7% to 22%.

Although gross domestic product (GDP) returned to positive growth in Q3, Capital Economics does not think the foundations are in place for a sustained economic recovery. Moreover, the depth of the slump already means it will take several years to work off the excess capacity of the economy and property markets. Although the pace of further rental falls may now slow, Capital Economics believes it could be two to three years before Irish commercial property rental value growth turns positive.