Rents surge to highest level in five years, rising by 10.5%

Rents have increased to their highest level in more than five years, rising by 10.5 per cent over the past 12 months, according to new figures from property website Daft.ie.

The survey confirms the trend evident in yesterday's inflation data, which showed a 2.6 per cent increase in rents for the month of February alone.

The Central Statistics Office (CSO) has recorded a 9.9 per cent increase in rents over the past 12 months, contributing to annual overall inflation of 4.8 per cent.

The average rent on properties advertised on the website stands at €1,334, its highest level since January 2002.

The growth in rents was particularly steep in urban areas. One-bedroom and two-bedroom apartments in Dublin 2 increased by 24 per cent and 20 per cent respectively, between February 2006 and February 2007.

Daft.ie estimates that these properties will fetch €1,234 and €1,679 a month. Strong growth in rents has pushed up yields for property investors, with the highest yields coming from properties in south Dublin and Limerick city, where yields average 3.9 per cent of the property price.

Writing in the Daft.ie report, Hooke & MacDonald economist Geoff Tucker said the increases were the result of population growth, driven by immigration.

"Alongside this, supply constraints in some key urban locations have led to further upward pressure on rents, while the substantially improved quality of the product on offer, with modern, well fitted-out apartments replacing the traditional older bedsits and flats, has also had its effect," he noted.

David Duffy, economist at the ESRI, said the outlook was for further increases in rents. "The net inflow of people coming into the country is forecast to remain strong and that's going to underpin demand for rental accommodation," he said.

After a period of decline, rents began to increase in May 2004, the same month that the Republic opened its gates to the new EU member states, the report states. Mr Duffy added that property investors may also enjoy demand from people who were planning to buy their first homes, but cannot now afford to do so.

First-time buyers who rent a room in their homes in order to afford their repayments should also be able to demand higher rents, according to Daft.ie.