Property
Irish and UK commercial property markets strengthen in 2014
By Michael Hennigan, Finfacts founder and editor
Apr 16, 2014 - 4:46 AM

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IPD UK Monthly Property Index

Both the Irish and UK commercial property markets have strengthened in the first quarter of 2014 with the latest JLL Irish Property Index showing overall returns at 9.1% while commercial property values in the UK rose by a further 1.0% in March, continuing the steady growth seen during the first two months of 2014.  According to the IPD UK Monthly Property Index, values have now risen by 6.8% over the last 10 months of consecutive growth, although overall they still remain below their 2007 peak levels. 

The Irish market index shows a year-on-year rise in overall returns of 24.9% -- back to the boom year annual levels in 2005 and 2007.

Irish capital values rose for the fourth consecutive quarter at 6.8% while offices posted growth of 7.8%, with retail at 6.7% and industrial at 2.4%.

Capital values are up 19% in the office sector over the past 12 months.

UK market

Commercial property values in the UK rose by a further 1.0% in March, continuing the steady growth seen during the first two months of 2014.

According to the IPD UK Monthly Property Index, values have now risen by 6.8% over the last 10 months of consecutive growth, although overall they still remain below their 2007 peak levels.

Real estate total returns for the month were 1.6%, boosted by an income return of 0.5%. Comparatively, bonds returned 0.1% and equities -2.7% (JP Morgan 7-10 yr/MSCI UK).

Strong returns for the industrial and office sectors, at 2.2% and 1.9% respectively, were driven by further capital value growth of 1.6% and 1.5%. For the slowly recovering retail sector, a total return of 1.1%, the strongest since December, was aided by capital growth of 0.6%.

Rental performance remained positive but muted, with commercial rents rising by an additional 0.1% in March, meaning a modest 1.2% gain over the last twelve months.

Rental values have continued to struggle in the retail sector, as lacklustre occupier demand and muted consumer confidence kept rents flat last month. Retail rents have been in decline for over 70 consecutive months since May 2008, leading to a cumulative decline of -12.6%. While expanding businesses are again demanding space in offices and logistical parks, demand remains far more muted for retail space, particular outside of key urban centres.

Total returns for standard shops outside of the South East rose to 1.0% in March, as values grew by 0.4%. Comparably, offices outside of the South East returned 1.2%, driven by a capital growth of 0.5%.

Retail warehouses and shopping centres also saw an upswing in March, with retail parks across the UK returning 1.2% in March, while Shopping centres returned 0.9%, thanks to improved value growth of 0.3%.

Phil Tily, Executive Director & Head of UK and Ireland, IPD, said: "The broader UK commercial real estate market continues to show signs of recovery and growth, with March proving to be the strongest month of 2014 so far.

"While rental values remain weak for the beleaguered retail sector nationally, improving investor sentiment, added 0.6% to capital values in March alone. Notably, the rate of capital growth for retail parks, distribution warehousing and department stores more than doubled month-on-month."

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