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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