The spread of investment performance across global property markets, at 32 percentage points, contracted for the first time in the nineyear history of the IPD Global Property Index. The index delivered a -7.3% total return in local currencies. The headline local currency total return, the steepest negative result since the inception of the index, is comprised of a capital return of -12.8% and an income return of 6.2%. The 2009 results presented by IPD co-founding director Ian Cullen yesterday afternoon in a live webinar from IPD's London headquarters are based on more than 52,000 properties in more than 1,000 portfolios worth circa $1.1 trillion from 23 of the world's most mature real estate markets.
Webinar chairman Ian Cullen was joined by the following panelists: AXA's Head of European Research and Strategy Alan Patterson; Fidelity's European Real Estate Head of Research Matt Richardson; Tim Bellman, Global Head of Research and Strategy at ING and, via conference call from the US, Susan Kolasa, Vice President, Global Real Assets at JP Morgan Asset Management
Global Index Results Analysis
Cullen said the headline -7.3% annual local currency total return is explained by the performance of the three major regional groupings: Eurozone, the rest of Europe and the rest of the world.
He explained: "The rest of Europe, which collectively represents the smallest weight of capital, contributed positively to the global bottom line; while the Eurozone more or less provided a neutral contribution; so the reason we were dragged so deeply into negative territory appears to be a combination of the huge weight of capital and seriously negative returns provided in that rest of the world mix in particular, from US and Japan."
Cullen added: "Returns were rising, from best to worst, continuously from 2003 to 2008. More recently, the spread of returns has reduced. "Looking at national market returns, and their components, positive income return was delivered across every market. More than half of the markets measured delivered a positive total return, although only two markets returned positive capital growth; South Africa, where capital appreciation would have been washed away by inflation, leaving Switzerland as the only market to deliver real capital growth. Every other market saw negative capital movements."
Webinar Debate Reaction to 2009 Results
In his reaction to the results, ING's Bellman said: "There are two aspects to this; one is global capital flows responding to the financial crisis and the withdrawal of capital and risk aversion. Second, there are local, individual real estate market factors such as occupancy and lease length characteristics. So it doesn't surprise me that European values are a little stickier because of the type of investors, the valuation practices and smoothing.
"Last year was a year of two halves: towards the end of 2009 there were signs of stabilisation in Europe that is perhaps why valuation write-downs didn't happen so much as there was a light at the end of the tunnel in the eyes of the valuers and market practitioners."
Fidelity's Richardson said: "What caught a lot of us by surprise was how aggressively some of the European markets came back. This has been a staged fall and will be a staged recovery."
AXA's Patterson said yields have been coming down over the last six to nine months in anticipation of better performance from property against the cost of cash. He continued: "This is the phase where we should be looking for rental value growth (RVG) coming through and we are not quite seeing it, or are likely to, because of austerity packages coming in throughout Europe."
Global Outlook in 2010
Richardson said the big problem with in the European banking sector will have an impact on property. "As we have seen in the UK, at the bottom of these cycles is often where property is seen as a good investment, particularly where bond markets are going into recession."
Patterson said: "In the year ahead there will be different performance in the