The widely perceived slowdown in the commercial property market is reflected in new performance figures from the London-based Investment Property Databank.
All property returns for the first three months of this year totalled 3.3 per cent compared to 5.1 per cent in the first quarter of 2000.
If this trend continues, then the overall returns from commercial property will fall well behind the 27.9 per cent recorded in 2000.
The slowdown can be traced predominantly to yields, which crept up for the third quarter in succession - this time by just two basis points. Coupled with this, rental values continued their upwards trend but lost pace slightly, rising by 2.5 per cent over the period.
The weaker performance since the start of the year was particularly notable in the retail market, which showed disappointing returns of 2.6 per cent, a long way short of the 9 per cent recorded in the fourth quarter of 2000.
Rental value growth lost momentum in the first three months of this year, even though it remained positive at 1.6 per cent and contributed to a 1.4 per cent rise in capital values.
At a segment level, shopping centres continued to trail the rest of the market with a return of 1.8 per cent. This contrasts with the fortunes of provincial shops, which delivered a return of 5.7 per cent.
Property returns eased off in all three sectors of the market during the first quarter of the year, but by varying degrees.
A differential of just one percentage point now separates offices, which emerged as the front runner with 3.6 per cent, from retails, which dropped back into third place with 2.6 per cent.
When measured annually, offices maintained a comfortable lead over the other two sectors, returning 27.6 per cent. Retails, by comparison, have returned 22.9 per cent and industrials 22 per cent.
Industrials made a quiet start to the year with a 2.9 per cent return but edged in front of retails on the strength of their income return. Values in this sector of the market climbed a relatively modest 1.4 per cent in the first three months of the year, the direct result of a 1.5 per cent increase in rental values.
Office performance at 3.6 per cent was half of what it was in the fourth quarter of last year. Capital growth of 2.5 per cent, although down on the previous quarter, remained above the all property average due to a 3.1 per cent increase in rental values.
Not surprisingly, office returns in central Dublin at 4.1 per cent were way ahead of the 2.1 per cent recorded in the suburbs.
Measured annually, the overall market returns remain strong at 25.7 per cent. Property values have risen by 19.9 per cent over the last 12 months in response to a 20.1 per cent increase in rental values.
Averaged over this period, property yields have remained unchanged, compared with a 43 basis point yield reduction over the 12 months to March, 2000.
DESPITE the slowdown, property continues to perform ahead of the other asset classes. Equity returns were negative in the first three months of this year standing at minus 2.7 per cent. Gilt returns also deteriorated, returning 2 per cent for the period.
Furthermore, over the 12 months to date, the total return on property of 25.7 per cent completely overshadows a minus 0.4 per cent return on equities and 7.4 per cent on gilts.
