European commercial property delivered a much improved euro-denominated total return of 3.7% in 2009, according to the IPD Pan-European Annual Property Index, compared to -11.4% in 2008. Stripping out the quite modest currency adjustments of the year left the 2009 return still just in positive territory, at 1.4% (-4.4% in 2008).

The headline euro return reflected a -2.0% capital depreciation offset by a solid 5.9% income return. But the positive return masked deterioration, compared to 2008, in nine out of the 16 markets measured by the London-based IPD which contribute to the headline total return. Both capital re-weighting - to reflect full estimated values of the constituent European commercial property markets – and end investor currency adjustments - are applied to the index.

The index results were delivered at a new series of IPD hosted webinars, broadcast live from IPD's London headquarters. Chaired by co-founding director Ian Cullen, the panellists comprised BNP Paribas Real Estate's Keith Steventon, CB Richard Ellis' Michael Haddock and Jones Lang LaSalle's Nigel Roberts.

When asked whether he anticipated the shift back to positive total returns as early as 2009, Keith Steventon said: "I admit I was slightly surprised as the numbers came in more optimistic than I thought they would; especially since we didn't think the German and French markets were performing well enough to drive an overall positive return".

From best to worst, the scale of euro based capital depreciation was shallower last year (between -28.9% and 16.1%) than in 2008 (between -43.9% and 13.2%). Ireland still suffered the steepest re-pricing for the second consecutive year, at -28.9%, while Norway bounced back from -26.4% in 2008 to an impressive 16.1% capital growth in 2009.

Michael Haddock said about a possible market recovery in Europe: "It's interesting to compare the similarities between the 2009 IPD Pan-European Index results and what happened in the mid nineties when we had a very sharp downturn, followed by a bounce back and then a few flat years while yields were waiting to catch up. It's possible we are looking at a square root shaped recovery as supposed to a double-dip".

IPD said the strongest trend reversal was in the UK: a euro capital return of -43.9% in 2008 was flipped to +4.9% last year - - partly due to a reversal of the currency effects in favour of sterling. Sweden was the third notable European market which saw a recovery in annual capital return from -20.8 in 2008, to 3.2% last year.

Nine markets delivered a steeper negative capital return in 2009 than the prior year, led by Spain, which delivered the steepest mainland European annual capital depreciation since the crisis first took hold, at -13.4%. Closely following was Poland, at -10.6%, while there were significant year-on-year deteriorations for four other major European property markets - - France, Portugal, Netherlands and Italy.

Ignoring currency realignments and aggregating purely local currency returns still shows a reversal of the patterns of 2008, with a negative (-4.4%) 2008 return - - reflecting a composite value write down of -9.2% - - just tipped over into positive territory (at 1.4%), as solidly positive income returns offset capital value falls in all markets but Switzerland.

When asked what his forecast would be for 2010, Nigel Roberts said: "It's not unreasonable to expect a local currency total return in 2010 somewhere between 6.0% and 7.0%. We have already seen very positive results in Q1 this year, but the question is will it continue, or are we in for a bumpy ride for the rest of the year?"

Ian Cullen, co-founding Director of IPD, said: "These results suggest a degree of stabilisation amongst European returns, with the market-by-market performance spread dropping for the first time in 8 years, and almost halving as compared with the Pan-European low point in 2008".

Capital Weighting of Index

Germany remains the largest European commercial property market, with an estimated value of €270bn held in professionally managed real estate portfolios. Germany is closely followed by the UK, estimated at €238bn and France, worth €219bn. These three largest markets contribute well over half of the Index, at 21%, 18% and 17% respectively - - with the balance comprised of the remaining 13 markets.