Irish commercial property returns rose to 12.7% in 2013 as the Irish
property downturn reached its nadir and property values increased amid improving
economic sentiment.
According to the
IPD/SCSI Ireland Quarterly Property Index, property values rose
by 3.2% for the year - - the first annual capital growth since 2007 - - while
income returns averaged 9.2%.
Real estate values began to grow in selected prime office markets at the start
of 2013, but
headline level capital growth did not emerge until Q3, halting the 23-quarter
decline that has seen
values fall by over 65%.
While the turnaround was mainly driven by Dublin’s office markets,
improvements in the Irish
economy in the second half of 2013 led to this growth spreading to both the
retail and industrial
sectors by the fourth quarter - for the first time since the onset of the
downturn.
Capital values for retail assets rose by 2.1% in Q4, leading to a total
return of 3.8%; while for
industrial units they grew by 0.6%, leading to a total return of 3.5%. Offices
continued to deliver
the strongest returns, of 7.2%, as values increased by 5.0%.
Overall, quarterly commercial property returns reached 5.7%, off the back of
capital growth of
3.6%. Comparatively, bonds and equities delivered 3.9% and 9.4% in Q4, and 13.1%
and 35.6% for
the year (JP-Morgan 7-10 yr/MSCI Ireland).
IPD said the heavy discounting of Irish real estate has pushed annual income
returns to over 9.0%, which
has attracted a host of investors from home and abroad, and led to the
successful launch of
Ireland’s first two REITs, all keen to take advantage of pricing in the market.
However, it is has been the economic and austerity-led improvements that have
finally increased
investor confidence, with property growth being backed up by a host of positive
economic
indicators. The second half of 2013 saw Ireland exit its EU/IMF €85bn Euro
bailout – the first
European country to do so – GDP growth of 1.5% in Q3, and unemployment fall to
12.5% (Central
Statistics Office).
Rental values, a measure of tenant demand, finally increased at the headline
level in the fourth
quarter of 2013 as a result of these economic improvements, by 3.7%, which has
increased the
confidence of investor’s in their ability to let assets.
Backing up the positive pricing sentiment, the fourth quarter of 2013 saw a
flurry of net
investment into the Irish market - - with levels of net investment reaching
€243m, their highest
since 2006, and the third highest year of net investment in the 30 year history
of the index.
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