Returns from Irish investment property increase 6.3% in Q2

Total returns from Irish investment property hit 6.3 per cent in the quarter to June 2015, rising above the 4.3 per cent returned in the first quarter of 2015.

That's according to the latest results of the IPD/SCSI Ireland Quarterly Property Index produced by market research firm MSCI.

Offices continued to lead the market, returning 7.4 per cent and 37.7 per cent year-on-year, compared with 33 per cent in 2014. “This represents another record performance figure for the office sector,” MSCI said.

Higher returns for Irish offices stemmed mainly from a strong occupier market, with rental value growth at 6.1 per cent in Q2 2015 far higher than for the other main sectors.

“Rental growth is now firmly established as the key driver of office returns, taking over from the re-pricing that drove the office market recovery in its early stages, when investor confidence began to return,” MSCI said.

The 12-month return for Irish commercial property of 33.7 per cent to the end of June 2015 was over double that for the UK which stood at 16.7 per cent, according to the IPD UK Monthly Property Index. Irish real estate also outperformed Irish bonds, which returned 7.6 per cent over the past 12 months.

Colm Lauder, senior associate at MSCI, said that while it had been a very strong quarter for office investments, "we have also seen an improvement in the industrial sector, with total returns rising 250 basis points over the course of the second quarter of 2015. The prime retail sector recorded a significant pick-up in rental performance during the second quarter, with market rents climbing by 4.4 per cent on Grafton Street as confidence returns to the retail trade."

Boom levels

Mr Lauder said values on Ireland’s leading high street had grown by 49 per cent in the past 24 months, but this still left values 62 per cent off the 2007 peak.

“Investment pricing on Grafton Street showed an equivalent yield of 4.5 per cent at the end of June, a long way off the 2.6 per cent level achieved during the boom years.”

Pauline Daly of the Society of Chartered Surveyors Ireland, said the increase in returns in Q2 reflected strong activity levels in the market across all subsectors.

“An interesting trend has been the change in transaction type in the second quarter from the large portfolio sales in Q1 to a larger number of individual asset sales in Q2. We are also seeing more investment spread to the regions, particularly in Munster, which is good news from a competitiveness perspective, and a wider pool of investors in the market which is likely to ensure liquidity and continued growth in investment volumes.”