Investment in Irish office property market sees record performance

Total returns from investment property in Ireland hit 6.3% in the second quarter of 2015, rising above the 4.3% returned in the first quarter of the year, new data shows.

Offices continued to lead the market, returning 7.4% in the last quarter, and 37.7% year on year compared with 33.0% in 2014, another record performance figure for the office sector, according to the figures from the IPD/SCSI quarterly property index.

Following a slight dip in the previous quarter, the higher returns for Irish offices stemmed mainly from a strong occupier market, with rental value growth at 6.1% in the second quarter far higher than for the other main sectors.

The index report also says that rental growth is now firmly established as the key driver of office returns, taking over from the re-pricing that drove the office market recovery in its early stages, when investor confidence began to return.

The 12 month return for Irish commercial property of 33.7% to the end of June 2015 was more than double that for the UK over the same period which was 16.7% according to the IPD UK monthly property index.

‘The index shows that it has once again been a very strong quarter for Irish office investments. That said, we have also seen an improvement in the industrial sector, with total returns rising 250 basis points over the course of the second quarter of 2015,’ said Colm Lauder, MSCI senior associate.

‘The prime retail sector recorded a significant pickup in rental performance during the second quarter, with market rents climbing by 4.4% on Grafton Street as confidence returns to the retail trade. Values on Ireland’s leading high street have grown by 49% in the last 24 months, although this still leaves values 62% off the 2007 peak,’ he explained.

‘Investment pricing on Grafton Street showed an equivalent yield of 4.5% at the end of June, a long way off the 2.6% level achieved during the boom years,’ he added.

According to Pauline Daly, of the Society of Chartered Surveyors Ireland (SCSI) said that the increase in returns in the second quarter reflects strong activity levels in the market across all subsectors.

‘An interesting trend has been the change in transaction type in the second quarter from the large portfolio sales in the first quarter to a larger number of individual asset sales in the second quarter,’ she explained.

‘We are also seeing more investment spread to the regions, particularly in Munster, which is good news from a competitiveness perspective and a wider pool of investors involved in the market which is likely to ensure liquidity and continued growth in investment volumes for the rest of the year,’ she added.