2015 returns rise 25% says IPD index

The Irish commercial property market recorded overall returns of 25 per cent in the last calendar year, according to the IPD/SCSI Ireland Quarterly Property Index. This follows on from a 40 per cent record breaking return in 2014.

The international researcher MSCI has noted that the Irish results for last year outpaced the UK returns of 13.8 per cent.

Most notable was the introduction of residential properties to the Irish study for the first time in the third quarter along with the admission of two new Reits.

The office sector continued to lead the market, returning 5.6 per cent in the last quarter to close out 2015 with a 27.1 per cent year-on-year total return. The retail sector returned 20.9 per cent and the industrial sector 21.2 per cent for the year.

The study identified rental value growth as the key driver in the Irish market during 2015 as rents grew by 14.4 per cent. Yield impact, a proxy for investor sentiment, added 7.2 per cent to the annual returns, a significant moderation on 20.2 per cent recorded in 2014 as pricing stabilised in the market.

The strong rental value growth indicated a clear sign of business confidence in the Irish economy but was also due to the limited supply of office space in Dublin city centre.

The findings also showed that 2015 proved to be the year in which the Irish recovery spread nationwide with obvious improvements in the regional retail sector and a growing demand for modern office space, particularly in Cork city. Key retail locations, especially properties on Dublin’s Grafton Street, produced the best annual performance with returns reaching 8.3 per cent in the final quarter of 2015 and 28.1 per cent over the year as a whole.

Colm Lauder, senior associate with MSCI, said the rate of total returns may have moderated in 2015 but this was representative of a market that was stabilising following the resurgent bounce back that occurred during 2014. Crucially, rental value growth was now the primary driver of performance in Ireland rather than yield movement, a sign that the occupier market was driving performance rather than investor demand. "This year will present its own challenges for investment property with the need to maintain a stable political environment crucial for a market still recovering."

Pauline Daly, president of the Society of Chartered Surveyors Ireland, said that as the economy continues to recover and companies locate and expand, further growth was expected in 2016 with rental growth likely to be the driver of capital growth. Much of the rental growth in the office sector would hinge on the adequate supply of new stock coming on stream to cater for demand.