COMMERCIAL property returns for the 12 months up to the end of March topped 20 per cent for the first time since 1989, according to the Irish Property Index.

The result was achieved despite a slippage to 4.6 per cent in the first three months of 1997 after an exceptionally strong final quarter in 1996. The latest three-monthly returns were still better than the corresponding period of 1996.

Rental value growth has eased across all three sectors of the market. Nonetheless, the underlying trend appears to be upwards.

In addition, yields continued to edge down, falling by 0.07 percentage points and contributing to a capital growth of 2.7 per cent.

Irish Property Databank (IPD) attributes the improved returns to investors of 0.1 of a percentage point over the first three months of the year on active management and the inclusion of a handful of industrial developments.

The index, which covers more than £600 million in property investments, is compiled by IPD in conjunction with the Irish Society of Chartered Surveyors.

Retails made the best start to 1997, outperforming the office and industrial sectors with a return of 5 per cent. The rate of income return achieved in this sector of the market dropped to 1.8 per cent as capital values continued to climb, rising by 3.1 per cent. Retail performance was in part driven by a 0.12 percentage point reduction in yields. Rental values rose by 1.8 per cent, compared with an increase of 4.3 per cent in the previous quarter.

In line with the other two sectors, office returns fell hack, measuring 4.4 per cent for the initial quarter of 1997. Capital growth of 2.5 per cent was down 2.2 percentage points on the December, 1996, figure. With very little movement in yields, much of this increase was based on a 2.6 percent rise in rental values.

Industrials trailed the pack with a return of 4.1 per cent in the first quarter of 1997. Although income return remains strong at 2.3 percent, capital growth at 1.7 per cent lagged behind that of the other two sectors of the market. Rental value growth of 0.8 per cent failed to match that of the previous quarter, but industrial yields continued to shorten, standing at 8.8 per cent at the end of the quarter.

The market continues to outstrip the UK where the overall return was 10.7 per cent for the last 12-month period.