Third year of strong returns

THE statistics on the Irish property market produced by IPD serve a dual purpose. The first is to provide a benchmark of investment performance against which individual property owners can assess themselves. The second is to provide an indicator of market performance, as published in the Society of Chartered Surveyors/IPD Index.

Last year, the portfolio return on capital employed in property investment measured 12.7 per cent. After stripping out the immediate effects of portfolio management - trading, development exposure and capital expenditure - the market return in clean standing investments was a little higher, at 12.9 per cent. The difference can primarily be explained by the impact of transactions which reduced portfolio returns by an average of 0.2 of a percentage point, largely as a result of the 6 per cent stamp duty levied on purchases.

The all-property return of 12.9 per cent, though a little down on the 1994 figure, marked the third consecutive year of strong property returns.

Capital values rose by 4.3 per cent during 1995, driven by a small rise in rents, at 3 per cent, and a marginal fall in equivalent yields, down one-tenth of a point to 8 per cent.

Across the three key sectors of the market, industrials once again emerged as the strongest performers, returning 15.1 per cent, compared with 14.1 per cent for retails.

Offices continued to lag behind, recording a return of 11.8 per cent. Rental values gained momentum in all three sectors, although the improvement has been most pronounced in retails.

Retail property also held the advantage in terms of capital growth, with values rising by 5.6 per cent.

One of the notable features of 1995 was the narrow geographical spread in property returns. Just four percentage points separated industrials (at 15.1 per cent) from the poorest performing sector - provincial offices (11.1 per cent) - a product of fairly uniform movements in both rental values and yields.

Only two market segments - rest of Dublin and rest of Ireland offices - saw an improvement in returns over 1994, in both cases a marginal one. Within the retail sector, Grafton Street stood out, benefiting from a 5.7 per cent increase in rental values.

The detailed property records compiled by IPD allow for comment on investment trends, as well as market performance. investment flows have shown a strong correlation with property returns, with 1995 being no exception to the rule.

Last year, the funds contributing to the SCS/IPD Index invested a net sum of £26.6 million into property, compared with £14 million in 1994. Purchase spending was down by a half and development spending dropped by a third during the year. By comparison, refurbishment expenditure, more than doubled.

Institutions showed a preference for retail property last year, with investment primarily concentrated outside the central" Dublin market.

In contrast, 1995 saw a substantial withdrawal of capital from the office sector.

While property returns weakened last year, the Irish equities and gilt markets were boosted by falling interest rates. For the year, equities returned 25 per cent and gilts 15.9 per cent.

On a more positive note, property returns in Ireland continued to outstrip the UK market, which yielded a return of just 3.2 per cent for the year.