Property fund says fall in capital values is easing

THE SHARP fall in commercial property values has finally eased, according to Ireland’s second largest property fund.

The annual report of the Irish Property Unit Trust (IPUT) shows that overall returns in 2009 fell by 18.9 per cent compared to a slippage of 38.8 per cent in 2008. The results for 2009 are considerably better than the benchmark figure of -24.3 per cent reported by the international researcher Investment Property Databank (IPD).

Niall Gaffney, chief executive of IPUT, says the results show that much of the volatility in the market has eased greatly. Capital values are bouncing along the bottom and he believes that the second half of 2010 will show further signs of recovery. This is being helped by interest from overseas investors in the Irish real estate market, he says.

IPUT’s debt-free portfolio of offices, retail and industrial properties showed an income return of 7.5 per cent in 2009 compared to 6.1 per cent in 2008. The overall value of the properties at the end of 2009 stood at €462 million, down from €611 million 12 months earlier.

IPUT’s improved performance has been greatly helped by the better returns from its modern office portfolio which is largely located in Dublin’s central business district. The office blocks account for more than 50 per cent of overall investments and have benefited from strong tenant covenants and relatively long lease commitments.

The unit-linked fund also owns six shops on Dublin’s Grafton Street and, according to the annual report, these investments also did considerably better than the benchmark returns from IPD.

The retail portfolio was also helped last year by a strong performance at the newly opened Opera Lane shopping enclave in Cork city centre which is now almost fully let. IPUT paid €40 million for a 35 per cent stake in the retail scheme on the former site of the Irish Examiner.

The fund acknowledges that it has conceded rental discounts to some of its retail tenants “in distress because of the economic downturn”.

Frank Close, the chairman of IPUT, says that the pace of any recovery in capital values will be gradual and, when this takes hold, he believes that the recovery will be confined to prime property investments. “As a result, a significant gap will open up between primary and secondary properties. The primary nature of the trust’s portfolio should ensure that we are well placed to benefit when a recovery emerges.”