Positive quarterly return is first for two years
Ireland's commercial property sector has posted its first positive quarterly total return in two years. According to the authoritative SCS/IPD Quarterly Property Index, it generated a return of 0.4pc for the three months to the end of March.
Jones Lang LaSalle concurs about the trend but is not quite as bullish on some figures as its index showed a return of 0.1pc for the quarter. JLL's head of research, Dr Clare Eriksson, also reports a slowdown in the rate of decline in capital value to 2.1pc. "While this shows only a marginal positive movement, it is a progressive change in trend and may be a tentative first indicator of a recovery of the market," she adds.
SCS/IPD estimates that capital values slipped by only 1.8pc -- the shallowest quarterly depreciation since the downturn began in Q4 2007. Rents fell 3.3pc for Q1 2010.
Nevertheless, Sasha Thomas, IPD service manager for Ireland, points out that other factors contributed to the positive outcome for the quarter's income returns and these more than offset the fall in rents.
"While market rents may be falling, lease structures protect income, making income return for property stable," he adds.
Income returns were positive in all three sectors. Industrial income showed the strongest returns at 2.6pc and more than offset a 1.5pc fall in this sector's capital values for a total return of 1.0pc. While income returns from offices were 2.3pc, a further 2pc fall in office capital values during Q1 saw this sector attain a total return of only 0.2pc.
A 1.6pc fall in retail values was more than compensated for by a 2.0pc income return to net a total return of 0.4pc. IPD said all-property initial yields expanded by a fractional three basis points (bps) to 8.2pc in the quarter.
Yields for retail property average 7.4pc, offices 8.6pc and industrial 9.6pc.
Mr Thomas adds that both rental value growth and yield pressure have eased for two consecutive quarters, "which is an encouraging sign for investors".
Dublin's prime shopping streets showed significant improvement in returns in Q1 2010 as values fell by only 1.3pc each in Grafton St, Henry St and Mary St. Rents in Grafton St eased 1pc while those on the northside streets fell by only 0.3pc.
Dublin city centre offices saw a 2.2pc drop in capital values. Mr Thomas points out that, nevertheless, this sector scored the strongest "positive yield impact among all segments, at 1.4pc, reflecting improving sentiment and aided by a 300 basis point improvement in rental pressure quarter-on-quarter".
Since the market peak in Q3 2007, IPD estimates that values have fallen by 56.3pc.