Returns in the commercial property market in Ireland have been positive over the last four quarters, with returns coming at the rate of 4.8 per cent over the past year. Research firm Investment Property Databank (IPD) has released calculations indicating the total returns in the third quarter of 0.7 per cent. The second quarter saw a small increase, and this number was higher than the 0.6 per cent rate of return obtained by UK commercial property investors. UK properties have returned only 3.5 per cent in the past 12 months.
Irish values fell 1.7 per cent in the quarter, which meant losses amount to -66.6 per cent since the peak of the market. An income return rate of 2.4 per cent was high enough to drive the performance into the black for the quarter.
Annual income yields in Ireland are currently sitting at about 9.7 per cent per year, which makes this market a very competitive one. International investors have taken notice, since the current market offers discounted assets with high income yields.
IPD does caution potential commercial property investors to consider their cash flow needs, though. Many leases were signed at the height of the market, which means reversionary yields are 6.7 per cent. When the leases expire, income on several properties will fall to current market levels, lowering future returns.
According to the SCS/IPD Ireland Quarterly Property Index, rental values were down by 0.6 per cent in the quarter. Offices were the strongest performing sector in the third quarter, and returned 1.3 per cent. The sector is seeing an improvement in demand, from investors and occupiers alike.
The retail sector is continuing to face challenges, however, and recorded a negative return of -0.1 per cent. Low consumer spending played a part in the disappointing figures, and commercial property investors are understandably cautious about putting their money into this sector at present.
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