THE IRISH commercial property market is showing negative returns for the first time since the first quarter of 2002.

The long running property index by Jones Lang LaSalle reports that the overall returns in the first quarter of 2008 fell by minus 2.7 per cent largely because of a 3.6 per cent drop in capital values.

The results are the worst since the first quarter of 2002. The last time there was a negative annual return was back in 1992 when Ireland also experienced a currency crisis and was eventually forced to devalue the Irish pound.

The sharpest fall in capital values was recorded in the retail sector where there was a surprisingly high slippage of 4.1 per cent between January and March.

This coincided with a downturn in consumer spending which is expected to fall further in the coming months because of the credit crunch and the economic slowdown.

Offices also took a hit in the first quarter with values down by 3.6 per cent while industrial investments declined by 2.4 per cent.

The disappointing performance by commercial property this year could have been much worse but for stable rental values which showed an increase of 1.5 per cent across the portfolio.

Retail and office rents were up by 2.2 and 1.2 per cent, respectively. The office sector had the best rental performance in the 12 months up to the end of March, rising by 6.3 per cent.

Margaret Fleming, director of capital markets in Jones Lang LaSalle, said values had adjusted in response to the financing and market climate, as always at this point in the cycle.

The number of transactions in the first quarter had been minimal due to a combination of tight credit availability and general confidence. "The wait-and-see mood is perpetuated by continuing turbulence in other markets, which is lasting longer than was initially anticipated," she said.

Researcher Gemma Sturdy said it should be remembered that this slowdown comes at the end of a very prolonged period of sustained growth which had seen property returns grow by 946 per cent over 15 years.

Most investors will acknowledge that they have had a phenomenal run because of the buoyant economy and the availability of cheap finance. The wealth acquired will inevitably allow them to pitch for other investments once they believe they are realistically priced.