Irish property values rise for the first time since downturn
Irish commercial property values, which fell by more than 65 per cent since the recession, rose by 0.3 per cent during the third quarter of 2013, according to the IPD/SCSI Ireland Quarterly Property Index.
The first capital value rise seen in six years was due to improving sentiment around the value of discounted property assets, as well as gradually increasing occupier demand. After 23 quarters of capital decline, the latest figures also show the highest quarterly total return for Irish commercial real estate since September 2007, at 2.6 per cent.
However, the index results mask a far from standard recovery despite positive topline figures. Demand for offices in central Dublin, from both investors and tenants, are driving returns, while recovery across the retail and industrial sectors is slower.
Office total returns were 3.2 per cent during Q3, driven by rising capital values of 0.9 per cent, but returns for industrial and retail lagged at 2.3 per cent and 1.7 per cent respectively. Both sectors continued to see falling capital values of 0.5 per cent and 0.3 per cent, though these represent a substantial easing in their rate of decline.
Discounted property assets have been on the radar of bargain hunting private equity investors for almost two years now, while the launch of Ireland’s first real estate investment trust (REIT) in June 2013 cemented this positive outlook.
High-income yields have been the key driver for investors returning to the market. All property annual income returns of 9.7 per cent to September 2013, are the highest measured globally by IPD, and are over a third higher than that of the 6.0 per cent offered on UK property.
Annual income returns were 10.2 per cent for offices, 12.2 per cent for industrials and 8.5 per cent for retail units. Provided tenants can be secured, these are tempting targets for investors willing to take on additional risk.
Occupier demand remains crucial for the recovery of the sectors. Rental values declined by 0.4 per cent overall, almost entirely due to lacklustre demand in the retail sector, which saw falls of 1.9 per cent despite a notable, but muted, uptick in consumer spending and sentiment.
Comparatively, rents rose by 0.5 per cent for offices, bolstering the confidence of investors looking to secure income returns, while in central Dublin, office rents increased by 1.0 per cent. Promisingly, occupier demand is also rising from tenants for industrial assets, which saw rental values increase by 0.3 per cent.
Annual returns to September 2013 for all property now amounts to 7.3 per cent, higher than those in the UK (6.5 per cent according to the IPD UK Monthly Property Index), or indeed much of Europe, essentially due to these higher income returns. Comparatively, Irish bonds and equities have returned 14.0 per cent and 24.6 per cent over the same period (JP Morgan 7-10yr/MSCI Ireland).
Ray Hanley, chairman of the valuation professional group of the Society of Chartered Surveyors Ireland (SCSI), says: “Further encouraging reports over the state of Irish economy are giving property investors, both at home and abroad, confidence about the promising recovery in the property market.
“Falling unemployment, rising house prices, predicted GDP growth of 2.7 per cent during 2014 and the recent announcement that Ireland will successfully exit the EU/IMF bailout plan at the end of the year are all sending out positive messages. While it’s a long road to recovery, the Irish market is definitely well on its way up.”
Phil Tily, executive director and head of UK and Ireland, IPD, says: “Growth is creeping back to Ireland’s property market after six very difficult years, but they are six years that have also seen an enormous effort on the part of government and the property industry to reinstate confidence in the market.
“The rewards of lowering stamp duty, the ridding of rent review legislation, maintaining corporation tax levels, and successfully implementing austerity measures are now starting to pay off, and hopefully what is emerging is a fitter, leaner and more sustainable property sector.”