Irish property returns eased off slightly in the three months to September dipping to 4.5% according to the latest survey by the IPD in conjunction with the Irish Society of Chartered Surveyors.
This is a 0.6% drop in returns from the 5.1% seen in the three months to June.
Rental values rose by 0.7% but the main driver behind capital growth was a further decline in yields, which dropped 14 basis points.
“After having posted its highest quarterly return for almost five years in the second quarter of 2005, at 4.7%, the office sector paused for breath in the third quarter and returns fell to 3.8%,” IPD says.
It attributes the easing to a decline in yields of 12 basis points in the third quarter thanks to private investor bidding.
These investors as well as home investors have proved even more active since the end of the third quarter.
However office rents continued to only nudge upwards on their recovery, rising 0.3%.in the third quarter.
Once again it was only the retails that recorded any real improvement in rental values, although growth of 1.6% was below the 2.6% seen in the second quarter.
A 13 basis point fall in yields in the three months to September was similar to that seen over the previous three months, leaving total returns for the third quarter at 5.6%.
More detailed figures, available in the IPD Irish Quarterly Review, show that there was a major shift in investor sentiment away from retail warehouses and towards shopping centres in the third quarter.
Shopping centre yields fell by 24 basis points over the quarter adding 4.7% to capital values three times the level of decline in retail warehouse yields.
In its commentary IPD adds: “This is in stark contrast to the previous 18 months, during which retail warehouse yields came in by almost 75 basis points while shopping centre yields fell by only 23 basis points, and may indicate that investors now believe that shopping centres are far more likely than retail warehouses to deliver strong rental growth in the short- and medium-term.”
Industrial returns were the weakest of the three sectors, at 3.5%. A modest 1.8% increase in capital values was due almost entirely to a ten basis point fall in yields, as rental growth remained slow.
Over the first nine months of 2005, Irish property returns, at 14.6%, have comfortably exceeded returns on equities and bonds at 12.5% and 8.0% respectively and have already beaten the 11.5% achieved by property throughout the whole of 2004.
In fact, if the rate of return seen over the first nine months of the year continues into the final quarter, Irish property will deliver returns of around 20% in 2005.
References: EGi News 02/11/05
