Investment returns rise by 4%, according to index

After a fairly slow start to 1996, the Irish property investment market up in the second quarter of the year when it showed a return of 4.1 per cent. The performance means that during the year to June, the market has produced a return of 14.7 per cent.

The Irish Property Index, published today, also shows that rental values have recovered considerable ground during the past 12 months, rising by 4.1 per cent.

This, in turn, has contributed to a 6.1 per cent increase in capital values.

The Irish market continues to outperform the UK, where property showed a return of 5.8 per cent during the year to June, according to the Investment Property Databank's (IPD) monthly index. Within Ireland, property also crept ahead of gilts, which returned 19 per cent. However, equities remained in front, with a return of 31.4 per cent.

In the three months to the end of June, rental values regained their momentum, rising by 1.2 per cent. Meanwhile, yields were brought in by a further 0.08 percentage points, producing a capital growth of 2.1 per cent.

All three sectors of the market improved on their performance in the first three months of the year, with a stronger rental value growth and a further reduction in yields. Industrial returns, at 5.2 per cent, ran ahead of offices at 4.2 per cent, while the retail sector remained in third place, at 3.7 per cent.

The index, which covers 271 properties with a combined market value of more than £770 million, is compiled by the Irish Society of Chartered Surveyors and the IPD.

At sector level, industrials lead the way in terms of capital growth, with values up by 2.8 per cent. Although rental values also continued their upward trend, capital growth in this sector of the market has been largely yield driven during the last three months.

The office return of 4.2 per cent represents a marked improvement on the first three months of the year. The strong performance in this sector is based primarily on a 1.7 per cent rise in rental values, the largest increase on record since December, 1991.

Retail returns were only marginally higher than in the previous three months. Capital values rose by a modest 1.7 per cent, responding to a slight improvement in rental values and a relatively small yield adjustment. The retail sector has made strong progress during the last year, with capital values up by 5.9 per cent and rental values by 4.9 per cent.

The market return, which strips out the immediate effects of management refurbishment, transactions and developments, cannot be confused with the portfolio benchmark, which represents the full return earned on all invested assets. Active management, partly the impact of some large industrial developments, has reduced returns to property investors by 0.2 percentage points during the last three months.