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Europe wide commercial property, as measured in
local currency, returned 8.0% in 2010, according to the
IPD Pan-European Annual Index.
The results, announced by Peter Hobbs, Head of
Business Development at IPD represent a significant improvement on the 1.4%
recorded in 2009. 2010 marks the completion of a full ten year history for the
€1.5trillion Pan-European index, which has recorded a ten year total return of
6.1%.
Hobbs said: "Most importantly, 2010 saw a return to capital growth
after two years of decline, at 2.2%. However, the value rise was more a case of
re-pricing, and improving investor sentiment, as opposed to occupier demand,
driven almost entirely as it was by yield compression, while rental value growth
remained weak across most markets."
Hobbs continued: "The range in returns across the continent, while
not as much as in recent years, is interesting due to the variations in the
composition: about half of the 17 markets reported saw a return to positive
capital growth in 2010, and there was a very strong relative performance of
France, Sweden and the UK.
"It is worth noting however, that no European market’s 2010 recovery even
approaches a return to the peak value levels seen before the downturn."
"The volatility of certain markets, such as Ireland, the UK and Spain, and
the relative stability of others, notably Germany and Switzerland, shows an
interesting comparison of the types of potential investment market across
Europe. They present choices in terms of portfolio construction, with the more
volatile markets offering potentially higher returns for the less risk averse
investor."
The top six markets in the index - - Germany, the UK,
France, Switzerland, Netherlands and Sweden - - account for almost 75% of
the market share, and the strong relative performance of the index was
driven to a large extent by the UK. Accounting for 20% of European commercial
property, the UK alone contributed 290 basis points to the total return figure.
While France also made a significant contribution to returns, of 1.5%, the slow
German performance acted as a drag on returns.
At the sector level, Offices and Retails dominated the
Index, accounting for 42% and 30% respectively, with Retails delivering a robust
return of 10.1%, while Offices lagged behind with returns of 7.3%. Industrial
properties, though making up a far smaller section of the market, only 7%, also
delivered a strong return of 7.6%.
There was a huge variation in sector returns between
countries, though Retails came out generally on top.
Hobbs concluded: "While local currency returns were 8%, it is
important to look at the returns in different currency denominations. 2010 was a
weak year for the Euro, thus a Euro denominated investor experienced enhanced
levels of return (to 11.2%). In contrast, yen denominated investor returns
suffered (down to -9.5%) as the Japanese currency appreciated by nearly 20%.
"These currency impacts are significant, and
they vary dramatically over time. In terms of GPB returns, for instance, the
stronger pound in 2010 had a slightly negative impact and this was more dramatic
in 2009, but the year before, 2008, the weak pound boosted sterling denominated
investors."
