Returns up 5.6% in first half of 2007 as market cools down

Higher interest rates and uncertainty about the housing market is continuing to dampen returns from the commercial property market.

The Irish Property Index released today by Jones Lang LaSalle (JLL) shows that total returns in the second quarter of 2007 rose by 2.9 per cent, bringing the overall figure so far this year up to 5.6 per cent.

The findings reflect a considerable weakening in the market place after a stunning performance in 2006 when JLL reported overall returns of 28.5 per cent - the highest since 1999.

The 5.6 per cent growth so far this year is a long way short of the 17.1 per cent figure for the same period in 2006. But annualised returns up to the end of June 2007 are still running at 15.9 per cent.

"The growth in property values and returns in the first half of this year shows a general easing which was to be expected in the light of rising interest rates," said Dr Clare Eriksson, head of research in JLL and compiler of the index which is the longest running measure of the performance of the Irish commercial property market.

Growth in the second quarter of this year was driven mainly by rising rents rather than yield adjustments.

Rental growth improved in Q2 with a rise of 1.5 per cent, up from 1 per cent for the first three months. Annual rental value growth for the year to June had an uplift of 6.2 per cent.

The index found that the retail sector continued to be the strongest rental performer, with a quarterly rental value rise of 1.8 per cent and an annual increase of 8.7 per cent. Office rental values grew by 1.7 per cent during Q2 and by 5.4 per cent in the year to the end of June.

Industrial property showed the strongest growth in capital values in the second quarter of the year, up by 2.1 per cent, with retail just behind with a rise of 2 per cent in the same period.

Industrial property also had the best performance in relation to capital values in the year to June with an increase of 18.3 per cent. The retail and office sectors had annual capital value rises of 12.5 per cent and 9.4 per cent respectively in the year to June 2007.

Despite performing well in relation to capital growth, the industrial sector had only a marginal increase of 0.4 per cent in rents in the quarter though it did record a robust annual estimated rental value rise of 4 per cent in the year to June.