IPD: Shallow negative Irish return masks steep capital falls

Irish commercial property delivered an annual total return of -2.4% last year, a vast improvement on 2009 when total returns declined by 23.3%, according to the SCS/IPD Ireland Quarterly Property Index.

This shallow annual return masks a double-digit capital depreciation of -10.7%, which was driven by a second-consecutive year of steep falls in rental values, at -19.3%. This was only a slight improvement on 2009's -22.4%, which compounded since the beginning of 2009, has delivered a rental decline of -37.4%.

Modest yield compression failed to insulate the capital write-downs last year; yield impact, which measures the influence yield movements has on capital values, was 1.5% over the year, compared to 2009's -17.8%.

Irish commercial property's increased risk premium is reflected in the 9.2% income return recorded last year - the highest in the 16-year history of the SCS/ IPD Ireland Quarterly Property Index. Income returns rose from 7.7% in 2009 corresponding with a further steep fall in capital values in 2010.

Commenting the figures, CBRE said the IPD results demonstrate that returns in the commercial property market in Ireland are now close to stabilization having experienced a decline of more than 60% from peak levels in 2007. While values are still in negative territory, CBRE said that it is encouraging to see that on a quarterly basis, the situation is improving.

'The market is now bumping along the bottom following almost three years of value erosion. There is still some downside risk in rental values, especially off prime, but we in CBRE believe that values have now effectively corrected to reflect the new world we are in. However in order to return to growth we will need to see a pick up in the economy and consumer confidence and this is unlikely to occur before 2012,' said Sean O'Brien of CBRE's Capital Markets team in Dublin.