Further evidence that the Irish property market continued to boom in 1997 is provided in the latest index which shows an overall return for the year of 25.3 per cent - almost 10 percentage points better than the fast growing UK market. The SCS/IPD index shows that capital values in December were 16.5 per cent higher than they were a year ago, responding to a 9.6 per cent increase in rental values and a downward shift in yields throughout 1997.
The findings, based on a sample of 298 properties with a combined value of £1.16 billion, are slightly ahead of those released a week ago by Jones Long Wootton. Overall returns for the JLW index of 24.7 per cent were based on a smaller sample of a notional portfolio of real properties worth £104 million. A large amount of growth in the SCS/IPD index came through in the last quarter, when the market recorded a total return of 8.4 per cent. Over this short period of time, yields fell by a quarter point, accompanying a steady improvement in rental values. Building in the effects of trading and development activity, the portfolio benchmark over the year was a shade below the market index of 25 per cent.
This strong performance was mirrored in all three sectors of the market. Retails recorded an annual return of 23.3 per cent, the product of a 15 per cent increase in capital values and a 8.3 per cent income return. Rental value growth of 6.2 per cent for 1997 was, however, slightly below that for 1996. As in the two other sectors, retails made strong progress in the final quarter of 1997. Capital growth at 5.6 per cent was double the rate of increase recorded in the previous three months. Offices emerged as the front runners in 1997, narrowly outperforming the industrials with a return of 26.5 per cent. The office sector held the advantage in terms of capital growth, with values rising by 17.8 per cent. This can primarily be attributed to a 11.9 per cent increase in rental values over the year. Yields continued their downward trend. This was particularly apparent in the final quarter of the year, when a drop of 0.28 per cent helped office values rise by 7.3 per cent. During 1997, industrials recorded a return of 26.3 per cent, up 5.5 percentage points on their position at the end of 1996. The industrial market continued to gain momentum throughout the course of 1997, recording a return of 8.3 per cent for the final quarter. Although rental values continued to rise, industrial performance over the last three months was largely yield driven, falling by more than a point.
The Irish market continued to exert its superiority over the UK throughout 1997. The IPD monthly index on the UK has quoted a return of 15.5 per cent for the year. Although this was a six-point increase on the 1996 figure, it fell some 9.8 percentage points short of the Irish property return.
Last year's strong performance continues to mirror the buoyant economy. Much of the economic growth stems from a high level of inward investment. Many of these companies are renting buildings and, in turn, are driving the property market. The arrival of some of the multi-nationals is also having a knock-on effect on indigenous c0mpanies, particularly those in the transportation sector.
Another important factor is the diminishing supply of quality buildings because of the failure of developers to embark on large speculative schemes as happened in previous booms.
