Returns on par with gilts, equities

THE annual performance of Irish commercial property over the past nine years has been on a par with gilts and equities.

A new study by the Investment Property Databank (IPD) shows that when the especially weak performance of the mid-1980s are excluded, total returns have averaged 11.5 per cent. Since 1983, returns have averaged 8.9 per cent per year.

The findings are to be published in the Irish Property Investors Digest, which will be launched later this month by IPD.

In the last nine years, rental value growth has averaged 4.1 per cent per year, with a large part of that gain the result of a 18.4 per cent rise in 1989 alone.

In the last two years, working with major investors in the market and the Society of Chartered Surveyors, IPD has produced a comprehensive record of Irish property returns.

It has also provided new insights into the structure of investment portfolios and the performance of different segments of the market.

Last week, IPD held a well-attended seminar in Dublin to mark the release of performance results for Irish property in 1995. The statistics are based on the valuation records of 10 investors with almost 300 commercial properties, valued at £750 million. The seminar was told Irish property generated total returns of 12.9 per cent in 1995, only slightly below the level of the previous year.

Last year did not see the slide in performance which was evident in the UK property market.

The seminar heard that over the long term, industrials have been the star performer, recording total returns of 13.4 per cent per annum since 1983.

Retail returns have run around three percentage points lower per year and office returns averaged 7.9 per cent per year over the 12 years to 1995.

IPD said the key to last year's solid performance was a further acceleration in rental growth of 3.7 per cent. This favourable rental trend, combined with a marginal fall in yields, lifted capital values by 4.3 per cent. The average rate of income return on property was 8.6 per cent.

The rental recovery was strongest in the retail sector, where rental values rose by 5.1 per cent. Office and industrial rental values both increased by around 3 per cent. However, industrials were the best performing sector, for the seventh consecutive year, due to a very high rate of income return (10.3 per cent).

This underpinned a total industrial return of 15.1 per cent in 1995. The returns from retails and offices were 14.1 per cent and 11.8 per cent, respectively.

Though the Irish investment market is small, it has been highly active in recent years, IPD said. While net investment fell by a third in 1995, compared with 1994, the rate of turnover in the market (purchases and sales combined) was still over 10 per cent of portfolio value.

IPD's new digest, which will give a more detailed picture of the industry, found, over the past 12 years, retail returns have varied significantly across the country. Graft on Street stands well ahead with an average of 12.9 per cent. The rest of Ireland surprisingly shows the next best return of 10.4 per cent, with Henry Street/Mary Street at 9.5 per cent and other prime central Dublin areas at 9 per cent.

The digest shows the "rest of Ireland" has produced the most stable returns in retail. The Henry Street/Mary Street area, followed by Grafton Street, have been the most volatile markets.

The report acknowledges retail property has shown a tendency to lead upswings in rental value, and was the least affected by the slump in rental values in the early 1990s.

Interestingly, IPD has shown the retail, office and industrial sectors have shared a very strong common cycle in total returns through the last 12 years. Every year, returns in the three sectors have improved or deteriorated together.

The standard deviation has been 11 per cent for both retails and industrials and 10 per cent for offices.