Irish commercial property delivers returns of 28.5%

Commercial property in Ireland outperformed the local stock market in 2006 with overall returns of 28.5%, the highest since 1999, according to the latest Jones Lang LaSalle Irish Property Index. 'The property market last year experienced the type of growth level previously seen before the millennium and, in spite of a strong growth in the ISEQ (Irish stock exchange) index, beat the local stock market for the third time in the last five years,' said Dr Clare Eriksson, Head of Research at Jones Lang LaSalle in Dublin.

Property's overall returns increased by 28.5% in the year, just ahead of the 27.8% growth in the ISEQ overall index in the same period. The property market last experienced such high levels of overall growth in 1999 (29.4%) and 2000 (27.7%).

JLL said capital growth was the main driver of the performance of the Index in 2006 with an uplift of 23.1%. Industrial property led the way with annual capital value growth of 24.9%, replacing the retail sector which had the highest year-on-year growth of the commercial market sectors for the five years previous to 2006.

Retail property followed closely behind with annual capital growth of 24.7% and a rise of 5.0% in the last quarter of 2006 compared to 4.6% for industrial during the quarter. 'Though lagging marginally behind the industrial sector, this was the highest annual rise for retail capital values since 1998,' Dr Eriksson said.

The offices sector of the market also performed well in the year with its highest capital growth since 2000, 21.8%, and a quarterly rise of 2.8% during the last three months of the year.

Initial yields in all three commercial property sectors were subject to compression in 2006, Dr Eriksson said. 'In particular, the initial yield in Q4 2006 for the retail sector of 2.8% was the lowest recorded in the Index during the last fifteen years.' The average yield for all properties in the Index now stands at 3.7%.'

Separately, CB Richard Ellis' Outlook 2007 report said the Irish spent nearly EUR 8 bn on commercial property in Europe in 2006 - almost three times the EUR 3 bn spent in the Irish property market. In total, some EUR 230 bn was invested in Europe’s commercial property market in 2006. This is 40% up on the year before.

CB Richard Ellis said Irish investors will continue to focus on UK and on the key European cities, including Germany, Amsterdam, Brussels, Barcelona, Madrid and Paris. But Irish investors will be less dominant on the European stage due to lower returns in the years ahead.