Irish commercial property returns in 2014 among highest in world
By Michael Hennigan, Finfacts founder and editor
Feb 9, 2015 - 2:39 AM

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MSCI, the global index company, has revealed that returns from Irish commercial property in 2014 were double the level in the UK and among the highest in the world.

MSCI has revealed that total returns on investment hit 40.1% year on year in Q4 of 2014, rising above the previous quarter’s high of 33.2%.

Offices continued to lead the market in Q4 2014, returning 8.7% in the last quarter, and 45.3% year on year compared with 18.3% in 2013, again a record figure. Irish retail properties produced a performance to rival offices, with returns reaching 8.8% in Q4 2014 and 34.7% over the year as a whole. As in the previous quarter, the high returns for Irish offices stemmed mainly from a strong occupier market, with rental value growth at 6.9% in Q4 2014 far higher than for the other main sectors.

MSCI says 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 40.1% to the end of December 2014 was more than double that for the UK over the same period (19.3% according to the IPD UK Monthly Property Index). Irish real estate also outperformed Irish bonds, which returned 23.1% over the last 12 months (JP-Morgan 7-10 yr) and Irish equities, which returned 16.9% (ISEQ Equity Index).

Colm Lauder, senior associate, MSCI, said: “The IPD/SCSI Quarterly Index shows that Q4 2014 is the first time that we have recorded a total return for Irish commercial property that exceeds the 40% mark. “The performance of Irish property has increased steadily over 2014 to reach this record level, largely based on the success of the office market and it is sure to lead to conversations of whether a bubble has re-occurred in Ireland. “Both rents and yields are still below peak time highs. Additionally, the moves by the ECB this week to inject cash into the Eurozone could possibly result in more money going into property in Ireland with potential increased demand from overseas buyers attracted by the weakened Euro.”

Lauder wrote in The Irish Times last month that outside of Dublin the market was still struggling. Significantly, the provincial retail sector, particularly in Cork, saw values finally return to growth in June. It is now likely that investors in such locations will record double-digit returns for 2014 due to a strong income return.

He said: "The income profile for Dublin and the broader Irish market continues to make the city an attractive and competitive location for investors. Despite the dramatic turnaround in values, annual income returns – upwards of 7 per cent – remain higher than many markets that would be deemed riskier, such as Edinburgh, Manchester and Barcelona.

This means that allocators should continue to see Dublin as a good value prospect. Coupled with the expectation of more rental value growth, with current rents still 30% off their peak, return prospects seem promising, even for new entrants to the market. The recovery in Dublin office values has been driven by two key factors: growing investor demand and improving market rents."

The return to high rents in Dublin that exceeded many big European cities during the bubble, is not a positive economic prospect.

Pauline Daly, president of the Society of Chartered Surveyors Ireland (SCSI) said “2014 was another extraordinary year for the Irish commercial property market with total year end volumes in the region of €4.54bn. “The recovery is being largely driven by growing investor demand and improved market rents and in the context of a low interest rate environment, we would anticipate that this will continue to be a feature of the market in 2015, particularly as the recovery spreads outside of the main urban areas.

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