Returns for first quarter hit 5.1%

The Irish commercial property market is still showing exceptionally strong growth. The London-based Investment Property Databank reports today that overall returns in the first three months of this year reached 5.1 per cent, bringing the figure for the last 12 months up to 28.2 per cent. Capital values are up by 22 per cent on those a year ago. Despite the headline figure, the SCS-IPD index for the first quarter reflects a downward trend in the rate of total return from the extreme 40 per cent rate hit in the year to March, 1999.

In the interim, there has been a mild slowing in the rate at which rental values are rising. The cooling in the market is primarily due to a less rapid fall in yields, especially in the office sector. Over the last year, the all-property yield is down by 40 basis points (and only 6 in the last quarter) compared with a drop of 87 basis points over the 12 months to March, 1999.

Measured over the past year, property continues to run strongly ahead of other asset classes. A 28.2 per cent return for property compares favourably with 7 per cent on equities and an overall decline of 1.7 points on gilts. Property has also performed better than gilts over the last three months but fell short of the 13.1 per cent on equities. Returns in all three sectors of the property market eased off by varying degrees in the first quarter. A gap of more than two percentage points continues to separate returns on offices, which remained the front runner with 5.9 per cent, from those of industrials, which came home at 3.6 per cent. The slowdown in performance was most notable in the industrial sector, where total returns were barely half of what they were in the fourth quarter of 1999, despite a further 0.1 percentage point reduction in yields. Office performance in the first three months of the year was 2.7 points below the 8.6 per cent return achieved in the final quarter of 1999. Capital growth at 4.7 per cent, although down on the previous quarter, remained comparatively strong due to a 4.2 per cent improvement in rental values.

The retail sector also slipped but a 4 per cent return remains strong, matching the figure for the same three months in 1999. Capital values rose by a steady 2.7 per cent during the quarter, supported by a 1.8 per cent rise in rental values and a seven basis points drop in yields.

Offices, with a total return of 31.9 per cent, maintained their position as the best-performing property type.

Rents have risen by 18.5 per cent over the last 12 months compared with 9 per cent for retails and 8.4 for industrials.