Returns top 24% to hit highest level in current market cycle

Overall returns from the Irish commercial property market in 1997 were 24.7 per cent - the highest level in the current cycle - according to a property index compiled by agents Jones Lang Wootton.

The exceptionally strong combined capital and income return compares with 19.2 per cent in 1996. The 1997 results are the best since the 31 per cent peak in 1989. There was a 17 per cent increase in capital values across the portfolio, rents rose by 10.6 per cent and the downward pressure on yields continued, creating the ideal ingredients for a superb overall performance.

The index showed all three of the main sectors contributed to the good returns and there was no "poor relation". This was due in part to the strong economic conditions and partly to a measured response from developers in not flooding the market with new buildings. Within this context, the strongest capital growth for the year was in the office sector, which grew by 17.7 per cent. With a vacancy rate of around 3 per cent at the end of 1997, the rising rental values - up 12 per cent for the year - provided the main impetus for this performance, enhanced by a general downward pressure on yields. Margaret Fleming of JLW says that most of the office stock in the index is second generation in traditional Dublin 2 and 4 locations where evidence of significant rental growth came through on reviews throughout the year. The portfolio's two office park investments also benefited from evidence of new lettings. At the prevailing low yields, such increases resulted in substantial capital gains.

The retail sector also did well in 1997 when there was very considerable competition between Irish and overseas traders for pitches on prime streets. About 45 per cent of the retail portfolio in the index is invested in prime Dublin high streets and these locations produced good rental growth, which put a downward pressure on yields. The non-Dublin high street properties also performed well. Overall, retail rental values rose by 7.3 per cent and capital values by 16.3 per cent.

The industrial sector continued to benefit from the buoyant economy. Rental values rose by 11.8 per cent for the year, with 10.2 per cent of it coming in the second half. The pressure on yields compounded this to produce a capital increase of 15 per cent.