Irish commercial property delivered an annual total return of -2.4% last year, according to the SCS/IPD Ireland Quarterly Property Index. This compares to a -23.3% return in 2009.
This shallow annual return masks a double-digit capital depreciation of -10.7%, which was driven by a second-consecutive year of steep falls in rental values, at -19.3%. This was only a slight improvement on 2009's -22.4%, which compounded since the beginning of 2009, has delivered a rental decline of -37.4%.
Modest yield compression failed to insulate the capital write-downs last year; yield impact, which measures the influence yield movements has on capital values, was 1.5% over the year, compared to 2009's -17.8%.
Irish commercial property's increased risk premium is reflected in the 9.2% income return recorded last year - the highest in the 16-year history of the SCS/ IPD Ireland Quarterly Property Index. Income returns rose from 7.7% in 2009 corresponding with a further steep fall in capital values in 2010.
Phil Tily, UK & Ireland Managing Director at IPD, said: "Steep rental falls are the story behind the Irish commercial property returns last year. Falling rents almost entirely explains last year's further steep capital depreciation, with the influence of yields on values modest."
Dr Peter Stafford, Head of Policy and Public Affairs at The Society of Chartered Surveyors, said: "The 2010 figures show that while the greatest shocks to the commercial property market are hopefully behind us, continued weak investor confidence and the poor macro-economic background throughout 2010 have led to a stalled market. In 2011, we look forward to the banking sector returning to normal activity, and a return to more positive investor and consumer sentiment, which should underpin stronger activity across all commercial property sectors."
At the sector level, retails and offices had the shallowest annual declines in capital growth, both at -10.5%, while industrials saw write-downs of -12.7%. Retail recorded the mildest rental value decline, at -16.5% compared to -20% for offices, but the sector had the lowest total return, at -3.0%. This was due to a smaller income return of 8.3%, compared to 11.1% and 9.6%, for industrials and offices respectively.
Capital growth at the segment level
Over 2010, the shallowest capital depreciation by segment was in the retail sector's Grafton Street, which fell by -8.3%, compared to -31.3% in 2009. By contrast, the neighboring Henry/Mary Street district delivered the second steepest capital write-downs, at -14.5% last year, compared to 2009's -31.6%. Over the full three years since Irish commercial property values have been falling, Henry/Mary Street has fallen by a staggering -70.3%, while Grafton Street has seen -68.4% loss in value.
Fourth quarter results
Over the final quarter of last year, all property capital growth was -3.3%, while income return was 2.3%, which combined to deliver a fourth quarter total return of
-1.1%, compared to Q3's -0.3%.
The steeper fourth quarter negative return can be attributed to a reversal of the third quarter's yield compression. In Q4 yield impact returned negative, at -0.5%, compared to 1.1% over the previous quarter. Negative rental value growth was 30 basis points shallower over Q4, at -4.9%.
At the sector level, industrials felt the sharpest capital declines over Q4, at -4.0%, followed by retails, -3.5% and offices at -3.0%.