Growth in the UK and Irish commercial property markets slowed in Q1, according to the latest Investment Property Databank figures.

Irish real estate posted its lowest quarterly returns since the beginning of 2004, 2.2% compared with 5.8% in Q4 2006, despite outperforming equities (0.3%) for that quarter.

Rental growth of 1% made offices the best-performing sector, returning 2.8% against 2.4% for industrial, while retail saw the steepest drop, a fall of 1.6% in Q1 2007 compared with 7% in Q4 2006.

However, IPD senior research analyst Angela Sheahan warned against seeing the quarterly returns as evidence of a longer-term slowdown. “It’s possible that it’s peaked but I doubt it”, she said. “If you look at annual rental growth, it isn’t obvious that growth has slowed. It’s more likely a lack of activity.”

Overall, Q1 returns for the UK were a little better at 2.3%, the lowest since 2003, driven by poorly performing retail. By comparison, office performed relatively well at 3.6%, from 5.4% in Q4 2006.

Continental Europe reported more robust returns last week. IPD figures for Austria showed a 6.5% return for 2006, the highest since the index was launched, although it underperformed equities (27.1%). And Austrian retail returned 8.4% for the year, compared with 6.4% for commercial and 6.3% for residential.