Returns up 24.9% over the past year

The commercial property market continues to bounce back after six years of decline and a fall in values of over 65 per cent.

The latest JLL Irish Property Index shows that overall returns have been positive for the 10th consecutive quarter with the first three months of this year recording an increase of 9.1 per cent. The findings mean that year-on-year the overall returns have now risen by 24.9 per cent – in line with growth rates in 2005 and 2007.

Overall capital values increased for the fourth consecutive quarter, rising by 6.8 per cent. Offices showed the greatest growth of 7.8 per cent, followed by retail (6.7 per cent) and industrial (2.4 per cent). The 19 per cent rise in capital values in the office sector over the past 12 months is hardly surprising given the continuing international demand for office investments and the higher rents now being implemented.

Rental values increased overall by 1.2 per cent in the first quarter and by 7.9 per cent in the past 12 months. Offices showed the sharpest increase – up 18 per cent – followed by industrial at 4.8 per cent. Somewhat surprisingly, retail rental values remained in negative territory, dropping by 0.1 per cent in the past three months and by 2.4 per cent over the past year.

Hannah Dwyer, head of research at JLL, said the recovery we are starting to see in occupier markets had impacted quite positively on the index findings during the past three months. Capital value increases had been driven by yield compression and rental increases, particularly for offices. Indicators were positive for the market and showed continued signs of improvement.

The much improved returns come after a particularly busy three months when commercial property sales hit €934 million – well ahead of the overall level of transactions for the full 12 months in 2012. A further €287 million in loan sales in the last quarter pushed the total volume in Q1 to €1.22 billion.

There were three deals greater than €100 million, the most notable being Central Park which was purchased by Green REIT, Kennedy Wilson and Pimco for €311.5 million.

Though mixed-use investments accounted for most of the major sales, retail transactions at €316 million moved ahead of office investments which totalled €265 million.

This trend looks like continuing with the planned sale of a portfolio of shopping centres booked for the coming weeks. If, as expected, there is strong demand for these centres then it will only be a matter of time before Nama and the main banks start offloading a range of provincial shopping centres which are trading badly and losing money.

A good proportion of the distressed centres are in direct competition with other shopping centres in the same cities and towns and in many cases their difficulties are being exacerbated by tough competition from discounters Aldi and Lidl.

Hannah Dwyer predicts that if demand for commercial investments remains strong and the number of properties continue to be released at the pace we had seen in the last six months it was possible that total investment volumes across loan and direct sales could reach €5 billion for 2014.