22 July 2014
Dublin, 22 July 2014: Quarterly returns from Irish commercial real estate accelerated to
8.5% in the second quarter of 2014, their highest level since Q2 2006, and ahead of the
imposing 7.2% return recorded in the first three months of 2014, according to the IPD/SCSI
Ireland Quarterly Property Index.
These strong returns confirm that the Irish market recovery is now firmly established, with
property values rising throughout the last 12 months. Capital growth of 6.5% for Q2 2014
was also the highest since 2006, and has been accelerating over each of the last four
The office sector continued to lead the market in Q2 2014, returning 10.1% in the last
quarter alone, which implies eight consecutive quarters of market outperformance for the
sector. Office values, nationally, have now risen by 22.7% over the last year, with values
right across the Dublin office markets rising by more than a quarter in the same period.
However, other parts of the Irish market are also now very much in recovery mode. Retail
property values have grown by more than 10% over the last three quarters, after six years of
decline, while industrial values are up 2.2% since Q3 2013.
Income return at 8.6% for the Irish market over the last year now constitutes a less
significant component of the overall total return of 26.6% than it had done in previous
quarters. However, the income return for Irish property is still the highest for any market
measured by IPD globally. This high level of income is continuing to prove attractive to both
domestic and foreign investors as general Irish economic conditions maintain their improving
Unlike in previous quarters, the high returns for Irish offices over the last quarter have
stemmed overwhelmingly from a strengthening occupier market, with rental value growth
reaching 11.0% in Q2 2014, a quarterly level that has not been matched this millennium.
Reductions in yields, reflecting increasing investor demand, meanwhile added less than 2%
to office capital values.
In contrast, the growth in retail values, which accelerated to 4.2% over the last quarter, was
entirely dependent on strengthening investor demand. Improving prospects for retail
consumption and the health of occupier markets lay behind this, reinforced by the fact that
the run of 21 consecutive quarters of falling retail rental values finally ended in Q2 2014;
rental values were stable over the quarter. This reflected the view that despite many
indicators on the Irish economy looking increasingly positive, personal consumption has thus
far proved sluggish; however retail investors look to be expecting an improvement.
Industrials have proved the weakest of the three main sectors in each of the last three
quarters, but here too capital growth took hold in Q2 2014, at 1.7% for the quarter, the
strongest quarterly growth since June 2007. As in the retail sector, industrial rental values
were however static on balance in the first half of 2014, with positive economic indicators
slow to percolate through into occupational demand.
The 12-month return for Irish commercial property of 26.6% to the end of June 2014 was
higher than that for the UK over the same period (17.6% according to the IPD UK Monthly
Property Index). Irish real estate also outperformed Irish bonds, which returned 19.6% over
the last 12 months (JP-Morgan 7-10 yr) but underperformed equities, which returned 28.6%
Colm Lauder, Senior Associate, IPD, said, “Growth in the Irish commercial property market
is now looking impressive, with the levels of return starting to rival those last seen in 2006.
However, it should be stressed that today capital values are rising from a much lower base,
with equivalent yields averaging 7.3% at the end of June 2014 compared to 4.0% at the
height of the last boom. At the same time market rents are now moving ahead after a long
period of economic stagnation as hard-earned fiscal reforms inject confidence in the Irish
Ray Hanley, Chairman of the Valuation Professional Group of the Society of Chartered
Surveyors Ireland (SCSI), said, “The Dublin market is continuing to strengthen and
investment volumes have continued to increase due to strong demand from both domestic
and overseas investors, particularly for modern office space. Given the level of competition
in Dublin and in other major cities, we are now starting to see more investors move up the
risk curve and seek opportunities such as in the retail sector, with considerable interest
being generated in a number of regional shopping centres which are currently on the market,
which should assist in the recovery in areas outside of the main cities.”