Saturday 24 February 2018

Property still 'buoyant' in spite of decline in returns

Ireland's provincial markets have followed Dublin's lead and begun to attract investors' interest, with Cork city the standout performer in the retail sector
Ireland's provincial markets have followed Dublin's lead and begun to attract investors' interest, with Cork city the standout performer in the retail sector
Ronald Quinlan

Ronald Quinlan

The total return on Irish property saw a rise in the three-month period to the end of June, the latest IPD/SCSI index has found.

The latest quarterly report, published by MCSI, shows that notwithstanding the uncertainty surrounding the UK's Brexit referendum, property delivered a 3.1pc total return, representing a slight increase on the 2.9pc return recorded for the three-month period to the end of March.

While that improvement will invariably be welcomed, it does represent a significant decline from the 4.2pc total return recorded for the same period in 2015.

Interpreting the data, MCSI noted that the Irish property market - the top performer globally for two years - has "moderated but also remained buoyant" as values and rents continue to strengthen.

Despite the deterioration in headline performance, Irish property investments continued to outperform other Irish investment asset classes in the first quarter; with a 2.9pc total return notably superior to equities, which stood at -0.2pc, and bonds at 0.9pc.

The investment performance of property also easily outstripped the inflation rate of 0.4pc.

A closer inspection of the latest IPD/SCSI index shows that industrial properties maintained their position as the best performing sector with a total return of 5pc, income return of 1.8pc and capital value growth of 3.2pc. The figures are reflective of strong capital and rental value growth.

South west Dublin stood out as the best performing area for industrial property, registering a total return of 6.7pc.

The return on office investments recorded a total return of 3.1pc in the three months to the end of June, with income standing at 1.1pc and capital values appreciating by 2pc.

Unsurprisingly, the Dublin office market was the strongest performer, with an average total return of 5.5pc off the back of an improvement in capital value to 4.6pc.

Commenting on the latest IPD/SCSI index, MCSI vice president Colm Lauder said: "We now see a gradual moderation in the world's best performing market: Capital value growth has slowed and yields are stabilising. The strength of this market is in the expectation of improved income levels as reflected by market rents growing across sectors and segments, particularly in Dublin offices and key Dublin retail locations.

"Provincial markets, which entered the recovery cycle after the capital, have grabbed investors' interest. Total returns for the provincial retail segment, which is dominated by Cork City, were the strongest on offer in the second quarter as rents finally began to recover."

SCSI president Claire Solon said: "The analysis of regional activity demonstrated the investment trend spreading from Dublin. Initial indicators show the Brexit vote has started to influence market activity, but it is premature to be conclusive regarding the outcome on investment. Indeed, there may be positive outcomes for certain property sectors depending on the specifics of the negotiations."

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