The soaring total returns seen in the Irish Property market during the first half of 2006 began to ease this quarter, with a total return of 4.8% compared to 8.7% in quarter two.

However, property returns measured annually still managed to climb to 30.3%, their highest point for more than six years, which is the net product of a 4.6% income return and 24.7% capital growth.

The third quarter return of 4.8% for property may have been down on the previous quarter’s return, but compares favourably with that of bonds where returns stood at 4.4%. The equity market picked up from last quarter (with a return of -6.1%), to produce strong returns of 9.9%.

Capital values in property continued to climb, rising by a further 3.8% in the three months to September 2006. Rental values continued to increase at a faster rate than the previous quarter at 0.9%. Meanwhile, yields dropped even further into uncharted territory dropping to a record low of 4.3%, implying that there is simply no let up in the confidence for growth within the market.

Retail was the best performing sector over the September quarter with a total return of 5.3%, out-pacing offices for the first time this year. This was down to strong rental growth of 1.0% as well as yields falling to 3.6%. The strongest returns were witnessed in Grafton Street where rental growth and yield compression significantly out-paced the rest of Dublin, and the rest of Ireland where yields are down to 2.7%.

Showing a turnaround from last quarter, where they were the strongest performing sector, offices were the weakest this quarter with total returns of 4.5%. This was despite strong rental growth of 0.9%. Offices lost out to retails because the compression in yields was less, finishing the quarter at 4.6%. Office returns were strongest in Dublin 1, where the capital growth is much stronger than the rest of the country.

Industrials outperformed offices but could not quite match retail with a return of 5.1% for the quarter, although this was an improvement on their result in the same quarter last year. Industrial capital values rose by a reasonable 3.5%, the results of adjustments in rents and yields. The strongest industrial performance was seen in South East Dublin.

For more information please contact:
Phil Tily - tel +44 (0)20 7336 9311.

* Consultative Index

The IPD says that the aim of the Pan-European Index is to improve market transparency. The Index is neither appropriate, nor authorised for use as a benchmark for two reasons. First, the total return series for each country only measure market trends and exclude the impact of active management in all its forms: trading, development, refurbishment, etc. Second, the Index represents work in progress and the historic series will change in future, as IPD’s coverage extends to more countries (e.g. Austria, Belgium) and as more accurate estimates of the value of each investment market become available.

The results for last year show a recovery in the performance of European direct property, with total returns improving from 3.7% in 2003, to 10.0% in 2004, measured in Euros. Capital values rose on average by 4.0%, reversing the decline in 2003. The results also demonstrate the importance of exchange rate movements. The depreciation of the dollar means that total returns to a US dollar investor have averaged 17.2% per year since 2000, compared with 6.8% per year for a Euro investor.

Office and residential property performed at much lower levels, with euro returns across all markets averaging at less than half those to retail assets.

Only in 2001 - the first year of the OPD Pan-European Index - did the returns to the three main sectors converge upon the Euro market average of 8.4% in that year, but even then retails were marginally ahead of the pack.

There are four fundamental stages in calculating the aggregate IPD Pan-European property index returns:

• Deriving monthly components of total return;
• Reweighting local currency index data according to the sizes of the
investment markets in each country;
• Converting reweighted local currency data to a common currency;
• Calculating monthly and annual returns.