IPD has published the IPD Germany Annual Property Index for 2008. According to the index, investment in German commercial real estate returned a total return of 3.5% in 2008, just one percentage point lower than in 2007.
The marginal fall on the prior 12 months is in sharp contrast to the significant repricing which most other continental European markets have experienced.
The milder falls in returns is owed to Germany's much lower rises in capital values in the years preceding the credit crunch. Returns were led by Retail, at 4.5%, followed by the Residential sector, at 4.4% and Offices at 2.8%. The Industrial sector produced the weakest returns, at 1.0%, driven by the steepest capital value falls, which were -6.2% for the 12 months to December 2008. All property capital growth was much milder, at -1.4%.
Within Offices which accounts for 47% of the 45.3bn databank the top performing city over 2008 was Stuttgart, with returns of 5.7%, followed by Hamburg and Munich which achieved 4.6% and 4.5%, respectively. Completing the Offices segments were Cologne, at 3.8%, Dusseldorf, at 2.4%, while the weakest returns were produced by Frankfurt, returning just 90 basis points. All property yields moved out 10 basis points over 2008, ending the year at 5.7%. In comparison, total returns in the UK were -22.1%, while Ireland returned -34.2% over 2008.
By comparison to other asset classes, property significantly outperformed the equity market, which returned -40.4% according to the DAX Index. However, returns were someway behind bonds, at 10.1%, as measured by the REXP Index.
Long-term property returns remain modest compared to other European countries, with three and five annualized total returns at 3.1% and 2.2%, respectively. Over the full 13-year history of the index, annualized total returns now stand at 3.5%.
Dr. Daniel Piazolo, managing director at IPD Investment Property Databank GmbH, a subsidiary of IPD Ltd. in London, said: "In Germany, there was considerably lesser need for a property market correction, given much slower growth in recent years. The headline numbers show that in Germany, despite the financial crisis in 2008, neither the rents declined nor the vacancy rates increased significantly. Indeed, the total return achieved over a turbulent 2008 demonstrated the stability of the German property market's rental income, the basis for a solid income return."