After a strong finish to 1997, Irish property returns dropped back marginally in the first three months of this year. The SCS/IPD Irish Index shows that all property returns fell from 8.4 to 6.2 per cent.

Rental values rose, but to a lesser extent than seen in the previous two quarters. Not surprisingly, yields continued their downward trend, falling by 0.15 of a percentage point and contributing to a capital growth of 4.4 per cent.

The overall performance in the first quarter of this year was an improvement on the corresponding period in 1997 and for that reason, the 12 month returns rose again to 27.2 per cent. Overall returns for 1997 were 25.3 per cent.

The authors say that active management, mainly development activity, reduced returns to property investors by 0.1 of a percentage point in the first three months of this year.

Like the other two sectors, retail returns tailed off slightly, measuring 5.8 per cent for the March quarter. Capital values continued their upward momentum, rising by 4.1 per cent, but failed to match the growth rate achieved in the final quarter of 1997.

The improvement in values was the product of a 1.8 per cent increase in rental values and a reduction in yields of 0.13 per cent. Offices with a return of 6.7 per cent made the best start of the year, with values rising by 5 per cent between January and March.

Yields in this sector strengthened from 6.83 to 6.68 per cent over the three months, while rental values rose by 2.1 per cent.

Measured annually, offices continued to forge ahead as the best performing sector of the market - hardly surprising when the overall vacancy rate is under 3 per cent and falling. Capital growth in this sector exceeded 20 per cent over the last 12 months.

In the industrial sector, returns dropped back from 8.3 per cent in the last quarter of 1997 to 5 per cent over the three months to March, 1998. Capital growth lost pace over the first three months of the year, rising by 2.9 per cent. Income return also edged down, albeit by a relatively small margin. Rental value growth of 1.3 per cent was less than half that of the previous quarter, while yields fell by just 0.1 per cent.

The results are based on a sample of 295 properties with a combined market value of £1.2 billion. Offices account for 52 per cent of the sample, retails, 37 per cent and industrials, 11 per cent.