Total returns in Irish commercial property picked up in Q2 2007 to 3.0% q/q compared to 2.2% in the first quarter of 2007, according to the SCS / IPD Irish Quarterly Index Q2 2007. The total return for the year to June 2007 stands at 16.9%, made up of 12.4% growth in capital values and a 4.0% income return.
The 3.0% total return seen in property in Q2 2007 significantly outpaced the 0.0% return seen in equities and the -3.2% return seen in bonds. The return on Irish property also outperformed the 2.1% return seen in the UK in Q2.
The strong capital growth of 2.1% in the quarter was made up of 1.8% rental growth and a fall in yields adding 0.5% to capital values.
Industrials were the best performing sector in Q2, for the first time in six years, with a total return of 3.2% compared to 3.1% in retail and 2.9% in office. The strong return in industrials was down to yield movements. Equivalent yields fell by 10 basis points in the quarter, adding 1.9% to capital values.
Contrarily, the strong returns in retail and office were down to the continued expansion in rental growth, which was 2.4% in retail and 1.7% in offices in Q2. Yields in retail and offices fell by just 1 basis point in Q2 adding a mere 0.3% to capital values in each sector.
"In contrast to the previous four years, where property returns in Ireland have been led by yield compression and rental growth has been slow, Q2 2007 shows yield impacts slowing and returns starting to be driven by robust rental growth," said IPD Research Manager Angela Sheahan.
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