OVERALL returns from the Irish commercial property market in 1996 were just over 19 per cent - the highest level in the current cycle - according to the latest property index from agents Jones Lang Wootton. The second half of the year saw the arrival of rental growth, which had been expected for some time.

The JLW study shows the market improved in two phases since 1993. In 1993/94 capital values contributed strongly to overall returns as the market adjusted to the historically high yields which followed the slump of 1992.

Following a steady year in 1995, 1996 saw the first actual evidence of growth in rental values. This was strongest in the office sector where rental values rose by almost 20 per cent in the year, mainly in the second half. Industrial rents also rose strongly (11 per cent in 1996) as new space began to achieve the higher asking rents.

Retail rents grew at a more modest level, 4.5 per cent, with Graft on Street outperforming the rest of the market. Overall rental values for the portfolio increased by 13.5 per cent, compared with 2 per cent in 1995. Actual income growth in the index portfolio was modest at 2 per cent due to the time lag effect of the rent review process.

In terms of capital values, industrial property forged ahead with increases of just over 16 per cent in 1996. This was comparatively evenly spread during the year and reflects both the improvement in rents and a steady strengthening of yields, under-pinned by a tightening supply of space.

JLW says the office sector showed a strong capital growth of 13 per cent in 1996, with an increase of over 9 per cent in the second half of the year. This was fuelled by rental value increases. rather than significant changes in yield, although good office investments were keenly sought.

The retail sector showed a less dramatic but nevertheless healthy capital value increase of 7 per cent.

For the portfolio as a whole, capital values increased by 11 per cent during 1996, compared with 4 per cent in 1995.