End of year results from the commercial property market are better than expected, with overall returns for 2000 at 27.7 per cent. The performance in the final quarter was the strongest all year, largely because of a significant growth in office rents.

The millennium year returns posted by Jones Lang LaSalle continue the pattern of a reducing overall return since the high of 1998 (39.2 per cent) but are less than 2 per cent lower than the 1999 figure of 29.4 per cent.

The results mean that property has again done considerably better than Irish bonds (12.4 per cent) and equities (15.8 per cent).

UK property also proved the best performing asset class in 2000, offering total returns of 10.5 per cent against 2.9 per cent for gilts and negative returns of 8 per cent for equities.

The London-based Investment Property Databank, which monitors a broader range of investment properties, is due to file its year end results within a week or so. Jones Lang bases its findings on a portfolio of mainly prime properties with a total value of over £223 million.

Margaret Fleming of Jones Lang LaSalle said a year ago most people thought returns would be around 20 per cent: "What changed was the continuing strong demand for space, driving rental values up in all sectors."

She said that while headline rents for newly completed office space reached new heights, 2000 saw the lagged effect of two years' growth come through for second generation offices. The percentage increases in rental values for this type of property were quite dramatic, coming as they were off a low base.

Although rents of £35 a sq ft for new space might have risen to £40-plus, the more interesting increase of £15 to maybe £28 per sq ft represented a far larger percentage growth for an older building: "This goes straight to the bottom line in terms of value."

Capital growth last year across all sectors was 22.6 per cent, according to the report. The fourth quarter produced the strongest growth with capital values rising by 6.6 per cent. Offices and retail were the two strongest contributors to capital growth. While office yields have moved down very marginally in the last quarter, most of the growth can be explained by rising rental values filtering through to almost all older office buildings.

Because of this, capital values in the office sector rose by 23.7 per cent in 2000 and by 6.2 per cent in the last quarter.

Growth in the retail sector was virtually identical at 23.6 per cent. The last quarter saw significant increases (up 8.6 per cent) some of which is attributable to Henry Street, where rental and yield evidence combined to give strong increases in value specific to that location.

Income growth in the Jones Lang portfolio was 11.9 per cent last year - the strongest increase since the early 1980s. Although this is partly explained by the rent review pattern of the properties, income in the office section rose by almost 20 per cent during 2000. Rental values in offices went up by 25.2 per cent in the year and by 8.5 per cent in the final quarter. The report says that rental evidence in older offices is building up and strengthening as rent reviews for 1999/2000 are completed.

Retail rental values also did well last year, rising by 19.6 per cent. Again, the last quarter was strong, with an 8.1 per cent rise in rental values driven primarily by Henry Street evidence with a perception of continuing strong latent demand for Grafton Street. Industrial values rose by 14.5 per cent in the year with 4.5 per cent of it coming in the last three months.