Returns up 3.3% in Q3

Market Research:A decent return for the commercial property market in the third quarter of 2007 was driven by a strong performance in the office sector, writes Jack Fagan

Overall returns from the Irish commercial property market picked up in the third quarter to 3.3 per cent compared to 3 per cent in the previous three months.

The SCS/IPD Irish quarterly index also showed that total returns for the year to the end of September stood at 15.2 per cent, made up of 10.9 per cent growth in capital values and a 4 per cent income return.

Three weeks ago the Jones Lang LaSalle Irish property index reported that overall returns in the third quarter rose by 2.9 per cent while there had been an increase of 14 per cent in the year to the end of September. IPD said yesterday that the 3.3 per cent total return seen in property in the third quarter significantly outperformed the drop of 14.9 per cent in equities and marginally beat the 2.7 per cent return seen in bonds.

The strong capital growth of 2.4 per cent in the quarter was made up of 1.4 per cent rental growth and falling yields which added 1.2 per cent to capital values.

Offices regained their title as the best performing sector in Q3 with a total return of 4.2 per cent compared to 2.7 per cent in industrials and 2.6 per cent in retails.

The strong showing by offices was attributed to a combination of robust rental appreciation and investor sentiment pushing yields downwards.

Office rents grew by 1.6 per cent in Q3 and equivalent yields fell by seven basis points adding 1.6 per cent to capital values.

The strong return in retail was down to rental growth and the return in industrial was a result of yield movements while rents remained static.

"Quarter three shows further strong returns in Irish commercial property. While rental values continue to grow, investor sentiment continues to drive yields down," according to IPD research manager Angela Sheahan.