Some of the bad news from the residential market has spread to the commercial sector with the lowest quarterly returns for three years being reported today by the SCS/IPD Index.

Total returns in the first three months of the year slowed to 2.2 per cent compared to 5.8 per cent in the last quarter of 2006.

The fall was largely due to a change of fortune in the retail sector where returns were only 1.6 per cent compared to 7 per cent in the last three months of 2006.

This was largely attributable to a marked slowdown in rental growth, particularly in prime locations - like Grafton Street, Henry Street and Mary Street - and a less significant reduction in yields.

The retail sector is also suffering because of concern about the sustainability of high rents and problems facing the economy.

Offices regained their crown as the top performing sector with a return of 2.8 per cent in Q1 compared to 2.4 per cent in industrials.

The offices' lead was based upon a better rental growth of 1 per cent.

Equivalent yields continued to fall adding 1 per cent to capital values.

Total property returns for the 12 months up to the end of March stood at 23.4 per cent, made up of 18.4 per cent growth in capital values and a 4.2 per cent income return.

The 2.2 per cent total return in the first quarter still outpaced the 0.3 per cent return seen in equities and the minus 0.1 per cent from gilts. However, the Irish returns were slightly below the 2.3 per cent seen in the UK in Q1.