Irish commercial property outperforms UK for fourth quarter

Commercial property in Ireland has produced positive returns for the fourth consecutive quarter, according to the IPD Ireland Quarterly Property Index.

Returns now total 4.8% for the last 12 months, despite the continued decline of overall property values. Q3 showed continued growth on Q2, up to 0.7% compared to the 0.6% delivered by commercial property in the UK.

Phil Tily, UK and Ireland managing director of IPD, said: “There remains some distance to go before the market can be said to be recovering, but key areas such as the Dublin Docklands office market, are benefiting from Ireland’s strong export services market and positive GDP growth.”

Despite a sustained increase in returns over the past year of 3.5% - driven by an income return of 2.4% - Irish property values fell by 1.7% in the last quarter and remain 66% below their market peak in 2007.

Average annual income yields of 9.7% have kept the Irish property market buoyant, attracting global investors looking for low-risk discounted assets. Tily commented: “The improving economic fundamentals and the keen demand from international tenants looking for cheap space are further signs that the market is starting to improve, albeit slowly.”

Reversionary yields have come in lower at 6.7% due to a significant number of leases being signed during a peak in the market, with return estimates likely to be revised down as the leases expire.

Commercial office property was the highest performing sector in Ireland during Q3, with returns of 1.3% comparing favourably to figures form the retail sector whose yields fell by 0.1%, the only sector to return negative growth.

The commercial office sector has seen a marked increase in tenant and investor demand, especially for the country’s limited premium office capacity. Rental values have fallen by a relatively modest 0.2% - the lowest since December 2008 – indicating an improved outlook for the sector.

The news comes on the back of positive signs from international investors, with German property investment firm AM Alpha set to open further serviced offices following the successful purchase of The Riverside II complex in Dublin.