Demand for property in Ireland remains ‘buoyant’ as returns increase

Investor interest in Ireland’s commercial property market is growing, with many investors now looking beyond Dublin to the country’s provincial markets, with Cork city the standout performer in the retail sector.  

The latest quarterly report, published by MCSI, reveals that property in Ireland delivered a total return of 3.1% in the second quarter, up from the 2.9% return recorded in Q1 2016.

Interpreting the data from the latest IPD/SCSI index, MCSI noted that values and rents in the Irish property market had strengthened of late which explains why demand for property in Ireland has “remained buoyant”.

However, while investors will undoubtedly welcome the pickup in total returns, it does represent a sharp drop from the 4.2% total return recorded for the corresponding period last year.

Despite the decline in headline performance, Irish property investments continued to outperform other Irish investment asset classes in the first quarter, with a 2.9% total return notably superior to equities, which stood at -0.2%, and bonds at 0.9%.

The investment performance of property also easily outstripped the inflation rate of 0.4%.

The IPD/SCSI index shows that industrial properties maintained their position as the best performing sector with a total return of 5%, income return of 1.8% and capital value growth of 3.2%.

SCSI president Claire Solon said: “The analysis of regional activity demonstrated the investment trend spreading from Dublin. Initial indicators show the Brexit vote has started to influence market activity, but it is premature to be conclusive regarding the outcome on investment. Indeed, there may be positive outcomes for certain property sectors depending on the specifics of the negotiations.”

South West Dublin was the performing area for industrial property, registering a total return of 6.7%, while the return on office investments recorded a total return of 3.1% in Q2, with income standing at 1.1% and capital values appreciating by 2%.

In terms of the office market, Dublin was the strongest performer, with an average total return of 5.5% off the back of an improvement in capital value to 4.6%.

Colm Lauder, MCSI’s vice president, commented: “We now see a gradual moderation in the world's best performing market: Capital value growth has slowed and yields are stabilising. The strength of this market is in the expectation of improved income levels as reflected by market rents growing across sectors and segments, particularly in Dublin offices and key Dublin retail locations.

“Provincial markets, which entered the recovery cycle after the capital, have grabbed investors' interest. Total returns for the provincial retail segment, which is dominated by Cork City, were the strongest on offer in the second quarter as rents finally began to recover.”