Europe-wide commercial property, as measured in local currency, returned 8.0% in 2010, according to the IPD Pan-European Annual Index.
Hobbs explained, "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."