Commercial property returns hit strongest level since 2006

Report suggests high rate of return confirms market recovery ‘now firmly established’

Castleforbes House , Mayor street , Dublin.  Photograph: Eric Luke /Irish Times

Castleforbes House , Mayor street , Dublin. Photograph: Eric Luke /Irish Times

Tue, Jul 22, 2014, 16:58

Returns from the Irish commercial property market in the second quarter of this year were the strongest since 2006.

Overall returns rose accelerated by 8.2 per cent during the quarter, with a rise of 6.5 per cent in capital values pinpointed as the main driver.

The strong returns were reported today in the latest Quarterly Property Index, published by London-based property market researchers IPD and the Society of Chartered Surveyors Ireland.

The report said the high rate of return confirmed that the Irish market recovery was now “firmly established”, with property values rising throughout the last 12 months.

It also noted that the office sector continued to lead the market, returning 10.1 per cent in the last quarter alone, which implies eight consecutive quarters of market outperformance for the sector.

Nationally, office values have now risen by 22.7 per cent over the last year, with values right across the Dublin office markets rising by more than a quarter in the same period.

However, the report noted that other parts of the market were not in “recovery mode”.

Retail property values have grown by more than 10 per cent over the last three quarters, after six years of decline, while industrial values are up 2.2 per cent since the third quarter of last year.

“Growth in the Irish commercial property market is now looking impressive, with the levels of return starting to rival those last seen in 2006,” IPD’s Colm Lauder said.

“However, it should be stressed that today capital values are rising from a much lower base, with equivalent yields averaging 7.3 per cent at the end of June 2014 compared to 4.0 per cent at the height of the last boom,” he added.

“At the same time market rents are now moving ahead after a long period of economic stagnation as hard-earned fiscal reforms inject confidence in the Irish economy.”

Ray Hanley of SCSI said: “The Dublin market is continuing to strengthen and investment volumes have continued to increase due to strong demand from both domestic and overseas investors, particularly for modern office space.

“Given the level of competition in Dublin and in other major cities, we are now starting to see more investors move up the risk curve and seek opportunities such as in the retail sector, with considerable interest being generated in a number of regional shopping centres which are currently on the market, which should assist in the recovery in areas outside of the main cities,” he added.