An end to upward-only rent reviews in Ireland?
An Irish shopping centre deal has collapsed as Ireland’s opposition parties have pledged to ban upward-only rent reviews. There may be implications for property markets across Europe, says Property Week today.
The proposed €350m purchase of the Liffey Valley shopping centre by F&C REIT Asset Management and Area Property Partners from Aviva and Grosvenor has fallen through, after lengthy delays. The parties involved had been awaiting an end to the upheaval in the Irish market over the past year but it now appears that the manifesto pledge by Fine Gael and Labour – favourites to win the general election on 25 February – has put an end to the deal. Banks are understood to be reluctant to lend on the transaction, given the uncertainty about rental levels and values for Irish commercial property as a result of the proposal. Aviva and Grosvenor were seeking to recycle capital through the disposal and will retain the centre for now.
The Financial Times notes that new upward-only leases have already stopped and that Fine Gael and Labour are proposing to make this ruling retrospective, covering leases agreed before 2010. The move, aimed at lightening the load on small businesses, would not only reduce rental income from commercial property but might also lead to additional loan defaults, the paper points out.
Property Week says the move would be “disastrous” for commercial property owners and quotes the Irish Society of Chartered Surveyors as saying that the move could cause values to fall by up to 20% and rents to dive.
Property Week goes on to say that sources close to the deal believe it will have implications for property markets in other European countries. Governments elsewhere may be tempted to carry out similar rulings, in order to help small businesses in the current difficult economic climate.
Outlawing upward only rent reviews will assist the viability of businesses generally. It will also allow rents to rise and fall, as trade rises and falls.
I suggest it was the misleading assumption of ‘upward only’ growth which produced over-valuation, greed, and the reckless speculation which resulted from an entirely untrue assumption that property values could only rise.