MarketReturns:  After a sluggish start to 2004, commercial property returns rose by 2.3 per cent in the last quarter, writes Edel Morgan.

The SCS/IPD index attributes the improvement to favourable rental value and yield movements, which lifted capital values by 0.9 per cent.

However, despite this improvement, overall returns for the first half of this year are down on the corresponding period last year by 0.5 per cent.

Retail was the star performer this quarter and the only sector to achieve rental growth. Rental values in the retail sector rose by 1.8 per cent during the last quarter and a fall in equivalent yields meant that capital values grew by 2.3 per cent. Although retail returns were not quite as ebullient as levels seen in 2003, they remained strong at 3.3 per cent in the last quarter.

Office market rents fell a further 0.4 per cent in the last three months. The decline was offset by the ninth successive quarterly decrease in yields which dropped to 6.28 per cent, stabilising values in the sector.

Industrial property returns remained unchanged at 2 per cent this quarter.