Index shows returns are marginally down

AFTER the strong performance at the end of last year, property returns dropped backed marginally in the first quarter of 1996, according to the Irish Property Index.

The all-property return fell from 4 per cent to 3.1 per cent. Rental values rose in the first three months of this year - but to a lesser extent than seen in the previous quarter. This, in turn, restricted the level of capital growth within the market. The all-property yield, meanwhile, fell to 7.9 per cent, its lowest point on record since December, 1991.

During the first quarter of 1996, industrials led the pack with a return of 3.8 per cent, followed by offices with 3.1 per cent. Retails slipped down to third place, averaging a return off 3 per cent.

The index, which covers more than £600 million in property investments, is published quarterly by the Society of Chartered Surveyors and the Investment Property Databank (IPD) of London. Measured annually, property returns have improved over the last two quarters. Standing investments recorded a return of 13.2 per cent during the year to March. This compares favourably to the UK market, which has delivered a return of 4 per cent over the last 12 months, as reported in the IPD monthly index. Retail returns fell by 1 percentage point during the first three months of the year. Capital growth (1.1 per cent) and income return (1.9 per cent) were both below their corresponding figures for the previous quarter. Rental values in this sector of the market rose by just 0.4 per cent over the three months, the smallest increase on record since September, 1994.

The index shows office returns also tailed off, measuring 3.1 per cent for the quarter. As in the retail sector, this can be attributed to a deceleration in the level of rental value growth. Office yields measured 7.7 per cent at the end of March, representing a shift of 0.16 percentage points.

Despite a slight improvement in the underlying rate of income return, the industrial performance was also reduced during the first three months of the year. Capital values rose by 1.3 per cent, compared with an increase of 2.5 per cent at the end of last year. Yields continued to fall, but rental value growth slowed to 0.7 per cent.

In addition to tracking market performance, the index now provides a portfolio benchmark return. This encompasses all properties held within a portfolio at any time during the year. It includes the impact of transactions and developments and represents the full return earned on invested assets. Transactions and developments had no direct impact upon performance during the first quarter of 1996, but have reduced returns by 0.3 percentage points over the last year.