Property funds outperform equities with 40% return

The continuing buoyancy in the property market has allowed unit linked property holdings to turn in their best performance with returns of 40.7 per cent. The returns, which cover the period up to January 1st, means that unit linked property holdings have outperformed the equity sector for the first time in five years.

The Lisney Property Rental Indices covers pension fund property holdings and prime rental levels throughout the main commercial sectors.

Significantly, the agency is predicting there will be a moderation in rental growth - except possibly for the industrial sector as the general upsurge in market activity works through to this area.

The composite index - the weighted average of the four individual property sectors - rose 14.2 per cent, compared with 12.8 per cent in 1997. This figure reflects the good growth in all sectors of the market and particularly the strong performance from the office sector, in which there is a high proportion of institutional holdings.

The study shows that hardening of yields in 1998 and, in particular, the rising rental levels led to a 13.4 per cent increase in capital values. The rental index for prime retail space showed an increase of 7.5 per cent for the 12 months year but Lisney says this figure may understate the position as few new lettings had taken place on either Grafton Street or Henry Street. Top rentals in the Blanchardstown Town Centre were now reaching £105 per sq ft, up 62 per cent on the opening rate two years ago. By comparison, Liffey Valley Shopping Centre opened its doors last October with retailers paying up to £140 per sq ft.

Demand for prime pitches in Dublin city centre produced high premiums from new occupiers. Racing Green paid a premium of £400,000 for the former Dunkin' Donuts unit and Lets Talk Phones paid £290,000 for 55 Grafton Street. Zone A rents on Grafton Street are now in excess of £210 per sq ft. In Henry Street, Morgan bought a leasehold interest in number 44 for over £250,000. The Lisney report says the office sector showed the greatest rental growth over the year with a rise of 13.4 per cent in rental values. Expansion of businesses, such as professional and financial services, resulted in strong demand for space. With vacancy levels as low as 3 per cent, this resulted in strong competition for space and upward pressure on rentals.

Georgian office rents experienced a massive 36 per cent increase in 1998. Rents were now established at £17 per sq ft for entire buildings in good condition. Rentals in this sector are expected to continue to rise over the next 12 months as demand remains strong. Dealing with the industrial sector, the report says the trend by owner-occupiers to purchase rather than lease continued in 1998 and this may account for the seemingly low rental growth of 7.7 per cent. Average rents for standard new units with around 10 per cent office content over 5,000 sq ft ranged from £6 to £7 per sq ft, rising to £7.50 for units under 5,000 sq ft.