Irish commercial property market up 7.2%

First quarter sees strongest showing since 2006 as capital values up 5%

The office sector returned 8.4 per cent in the first quarter alone. Photograph: Eric Luke

The office sector returned 8.4 per cent in the first quarter alone. Photograph: Eric Luke

Fri, Apr 25, 2014, 01:00

Returns from the Irish commercial property market in the first quarter of this year were the strongest since 2006. Overall returns rose by 7.2 per cent in the first three months, with a rise of 5 per cent in capital values the main driver.

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

The figures further confirm the market recovery that first started to emerge in the middle of last year, when the decline in values that began in late 2007 started to turn around.

Boost demand
The results are likely to boost demand for the large number of commercial property investments due to be offloaded by the banks and the National Asset Management Agency (Nama) before the end of the year.

Sales in the first three months of this year have already exceeded €934 million, well ahead of the overall level of transactions in 2012 – and, according to agents JLL, total investment volumes across loan and direct sales could reach €5 billion for 2014 as a whole.

Office sector
The recovery has been spearhead by the office sector, which returned 8.4 per cent in the first quarter alone, following on from six previous quarters when it also led the market.

Office values nationally have now risen by nearly 12 per cent in the past six months with Dublin leading the way. However, recovery has now also spread to other parts of the Irish market, with the retail sector returning to growth after six years of decline.

Total returns for the Irish market over the last 12 months now stand at 19.4 per cent, with nearly half of this comprised of an income return of 9 per cent – the highest for any market measured by IPD globally.

The total 19.4 per cent return compared to 14 per cent for the UK.

Rental value
For offices in particular, the strong income position is being bolstered by an improving occupier market, reflected by the significant rental value growth of the last six months.

Property market researchers IPD say that the 3.9 per cent growth in retail values over the last quarter has so far been based on strengthening investor demand.

Constrained consumption continued to pull down rents but the reduction over the most recent quarter was marginal at -0.7 per cent, the figures show.

Phil Tily, executive director and head of UK and Ireland at IPD, said the growth now looks to be well established in the Irish commercial property market.