Property Returns: Rents in Dublin's high streets rose by 25 per cent in 2003, according to the latest Lisney Rental Indices. But it was a completely different story in both the industrial and office sectors where rents fell by 2 per cent and 4.2 per cent respectively during the same 12 months.

Two other property indexes have already reported a good performance by the retail sector though the overall returns in both cases were well short of the 25 per cent figure cited by Lisney. However, Lena Clarke, a divisional director in the agency's investment department, explains that their indices track movement in rents for prime properties only and therefore differ from the other indices which track a selection of actively managed property portfolios.

The Lisney Rental Indices also differs from the others by monitoring the performances of the unit-linked property investments. Here again the index fared quite well, showing a return of 12.81 per cent in 1003 compared to only 1.87 per cent in 2002.

Interestingly, the unit-linked equity index outperformed property for the first time in six years, rising by 15.45 per cent, a dramatic turnaround on the 2002 performance when the index fell by 24.5 per cent.

Overall, investment funds performed better in 2003 than in the three previous years. The unit-linked equity did well last year but still has considerable ground to cover to make up for the poor performances in the previous two years.

The continuing weakness in the office sector was also evident in the Lisney indices which found that rents fell last year by 4.2 per cent. However, the rate of decline slowed down compared to 2002 when there was a slippage of 8.2 per cent. Lisney says that this indicated that office rents may begin to stabilise or possibly increase in the short to medium term.

Closer analysis reveals that some sub-sectors did stabilise in 2003, such as well located older city centre stock which showed no change over 2002's figures and are now letting at about €344 per sq m (€32 per sq ft). The Georgian office market also stabilised and prime rents for buildings here remained unchanged at about €377 per sq m (€35 per sq ft).

However, headline rents for new city centre high spec offices fell by 4.76 per cent in the last six months of 2003, representing an overall drop of 6.9 per cent during the full year. Rents for the best quality city centre offices have now fallen 17.1 per cent since their highest level in January, 2001. The decline in rents for well-located suburban offices has also shaken the market, falling 2.56 per cent in the last six months, 5 per cent during 2003 and around 19 per cent in the last three years.

Lena Clarke advises that office rents in the suburbs may soften further in the short term as these locations are still exposed to high vacancy levels. The latest figures, she says, suggest that the overall rate of decline has decelerated over the last 12 months and, with strengthening economic conditions and business confidence improving, office rents should begin to stabilise.

The Lisney study shows that the retail is moving in a counter cyclical manner to the other sectors. A number of new lettings on main streets, coupled with recent rent review settlements, indicated exceptional growth. Prime retail rents rose by 16.28 per cent in the last six months of 2003 and by 25 per cent during the full year.

Lisney says that the main driving factor for rent increases was the fact that there was a limited supply of good pitches on both Grafton Street and Henry Street coupled with a strong demand from both national and multinational traders. Lisney's composite rental index, the rated average of the four individual property sectors, increased in 2003 by 5.62 per cent.