Irish commercial property tumbles: IPD

The total return of the IPD Irish Quarterly Index came in at -2.3% in the first quarter of 2008, the worst return in the index history which dates back to the start of 1995. Moreover, this quarter's negative growth brings to a close 23 straight quarters of positive performance, IPD said. The reversal has dragged the 12-month total return of the index to 4.9%, itself the lowest annualised return since 2003.

IPD said that the change in the capital value of investments in Irish commercial property over the quarter was -3.3%. This turnaround was driven by a sudden collapse in investor confidence, triggered by pervasive financial sector uncertainty. The issues of greatest significance to investors are all linked to the underlying economic fundamentals which will determine the strength of occupier markets over the coming years. Although rental value growth remained positive at 0.7% in the first quarter, it dropped from 1.5% in the preceding quarter and is the poorest result for the past 12 months.

Retail saw the sharpest reversal with total returns falling to -2.8%, compared with 1.6% growth in the three months to December 31, 2007. Industrial properties were the only sector with a positive total return, earning investors 0.4% in the period. Total return from the office sector was -2.4% over the same period. 'The outward movement in yields in quarter one reflects a pricing correction which needed to happen because property yields had been pushed so low over the previous five years,' said IPD research manager Angela Sheahan. 'The situation is aggravated by the lack of available debt and uncertainty in the global financial markets.'

The Irish index is based on a EUR 5.7bn sample of 330 properties from 12 portfolios.