Index shows return of 12.9% for last year

THE overall returns from commercial property during 1995 reached 12.9 per cent, according to the Irish Property Index. The findings will provide further encouragement to investors move funds into property during the current cycle of low interest rates. However, competition for investments in Dublin is now more tense than it has been for years because of the expectation that rental values will increase.

Although the Irish all-property yield at 12.9 per cent comfortably outperformed the UK market which delivered a return of 3.2 per cent, the results are still 2.7 percentage points behind the corresponding figure for 1994. Rental growth gained further Momentum during 1995 but yields began to bottom out, giving rise to a much slower rate of capital growth.

Existing investments recorded return of 4 per cent during the final quarter of 1995, a marked improvement on the previous three months. Property values limbed by 2 per cent, responding to favourable yield shifts and improved levels of rental value growth.

Property returns rose in all three sectors during the last three months of 1995. With a return of 4.9 per cent, industrials regained their position as the strongest performing sector. Retails were forced into second place with a return of 4 per cent, ahead of offices at 3.8 per cent.

The index, which covers 283 properties with a combined market value of £745 million, is compiled by the Irish Society of Chartered Surveyors and the Investment Property Databank.

Retail returns in the last quarter of 1995 were up almost one percentage point on the previous three months. Capital values rose by 2 per cent, reflecting a reduction in the underlying yield and a 1.3 per cent increase in rental values. Over the year, retails achieved a return of 14.1 per cent. A 5 per cent increase in rents over this period helped retail property maintain a relatively favourable level of capital growth during 1995.

At 3.8 per cent, office returns reached their highest level since September, 1994. Capital appreciation of 1.8 per cent and rental value growth of 1.2 per cent were both above their corresponding figures in the previous year. Coupled with this, the underlying office yield fell during the quarter to measure 7.7 per cent in December. Nonetheless, offices emerged as the worst performing sector for the year. The lack of any significant rental growth limited the level of capital appreciation.

The industrial returns of 4.9 per cent compared favourably with 3 per cent recorded in the preceding quarter. Industrials proved to be the strongest performers over the year, returning 15.1 per cent.