Italian commercial property delivered a 5.2% total return in 2010, according to the IPD Italy Annual Property Index, a strong improvement on the 0.8% recorded in 2009.
However, capital values continued to decline, now for the third consecutive year, at -0.5%. From 2008 to 2010, year on year capital depreciation has seen values fall -7.8%, though 2010 has seen a considerable slowing, down from -4.6% in 2009. Italy is among a number of European commercial property markets still experiencing capital decline in 2010.
Falling rental values contributed to the negative capital movement, continuing the rental decline started in 2009, dropping a further -0.7%, and a mild expansion in yields was recorded. Nevertheless, vacancy rates fell for the first time since 2007, to 7.3% last year, and income return increased by 10 basis points, to 5.7%, the highest income return seen in the last five years.
At the sector level, as the chart above shows, Industrials outperformed both Offices and Retails, delivering a total return of 7.1% for the year, driven entirely by a 7.2% income return.
Offices and Retails recorded capital depreciation for the year, at -0.6% and -0.4% respectively, while Industrial capital movements stabilized at zero. Three years of negative capital movements, since the start of the financial crisis, have seen Retails lose 10.1% of their values, while Offices and Industrials recorded a cumulative -6.1% and -10.2% respectively.
Luigi Pischedda, IPD's Country Manager for Italy, said: "As we have already seen from the IPD Italy Bi-Annual Index, capital depreciation has continued into 2010, though at a shallower rate than in previous years. Total returns, however, have returned to strong positive territory, and the Italian commercial property market is recovering in line with other European nations.
"Overall, the figures hint at a new phase in the property cycle, where declining values seem to have bottomed out. Early signs of growth are appearing in some segments, but this is very much dependent on geography and asset class. For instance, within the shopping centers segment, which is underperforming as a whole, we are seeing very strong returns from large, secure shopping centers, but negative returns for the smaller centers. Like the rest of Europe, Italy is seeing a great diversity as investors hunt for well located, secure investments."