Research shows rising rents pushing up rental yields

RentalMarket:Rent yields in Dublin have been rising steadily in the last six months and more increases are on they way, according to new research.

The average rental yield in Dublin is 4.4 per cent, representing a 0.5 per cent increase in the last six months, according to a rental yield survey conducted by Savills Hamilton Osborne King.

The survey was based on the average monthly rents of almost 600 Dublin two-bedroom apartments.

Yields are at their highest in the city centre where landlords are currently enjoying a 4.9 per cent yield on their investment properties, up 0.75 per cent from the same time last year, according to the Savills HOK research.

The most dramatic growth has been in the south of the county where rental yields are now at 4.39 per cent, up over 1 per cent, from 3.07 per cent at the start of 2006. Yields in the north of the city have increased by just over 0.5 per cent and are now at 4.49 per cent.

On the south of the city, landlords are now getting a 4.28 per cent yield; this is up from 3.87 per cent at the start of last year.

In the north of the county, landlords are enjoying yields of 4.45 per cent - up from 4.17 per cent in the first quarter of last year - while in west Dublin yields are now at 4.49 per cent, a marginal increase from 4.26 per cent.

The survey indicates that rents have been rising since the middle of last year, but especially since the start of 2007, explains Derek Brawn, head of research at Savills HOK.

Following seven successive interest rate hikes there has been "a fundamental re-appraisal of property valuations and thus rental values" in recent months, he explains. Prior to this investors accepted lower yields based on an expectation of returns from future capital appreciation, according to Brawn.

Now as capital values are no longer expected to rise as they did in the past, rental income will become more important and rents are likely to edge up further, he says.

Yields are at their highest in the Dublin 18 area of Sandyford, Foxrock and Carrickmines, where average house prices are €440,423 and average rents are €1,934, resulting in a 5.3 per cent yield.

In Dublin 5 rental yields are at 5.1 per cent, an average two-bedroom apartment costs €365,000 and average monthly rents are €1,550.

In Dublin 2 landlords are enjoying yields of 5 per cent. Rents in this area are €2,005 and the average apartment prices are €481,250.

Surprisingly, yields are at the lowest, according to the research, in Dublin 14, where average apartment prices are €527,500 but monthly rental is just €1,538 giving a yield of 3.5 per cent. Areas such as Dundrum and Churchtown in Dublin 14 have experienced significant price increases thanks to the arrival of the Luas but rents have yet to follow suit, explains Brawn. The gradual disappearance of the first-time buyer means that investors will play a more dominant role in the new homes market, says Brawn. He advises residential investors to look at areas where there is good supply and where yields are above the average of 4.5 per cent, like Dublin 11 and 15. If you can afford it, go for prime areas such as Dublin 1, 2 and 18 where yields are high, he says.

One reason why professional investors are always targeting Dublin 2 and 4 is because they are "recession-proof", he adds.