The IPD Norway Annual Property Index released on Wednesday, showed that Norwegian commercial property delivered a total return of 4.7% in 2012. This compares with a 7.3% return for 2011.
Bolstered by higher risk appetite among investors in 2012, direct property underperformed equities, which delivered a total return of 11.6% (MSCI Norway), but performed better than the 4.0% total return from bonds (ST5X Oslo Stock Exchange).
Income return for 2012 was stable compared with last year at 5.8%, while capital return decreased from 1.5% to -1.0%. Norwegian Mainland GDP growth improved to 3.5% and inflation was at 1.1% (HCPI). The real total return of 3.5% is below the average over the past 13 years, from 1999 to 2012, at 7.3% per year.
The difference in total return between sectors was relatively small in 2012. Offices performed the best, with a total return of 5.0%, followed by retail at 4.1%, and industrial close behind with 4.0%. The Index showed positive market rental increase of 4.1% for offices but a 1.5% decrease for retail. Furthermore, the Index showed a small increase in valuation yields across the board, averaging at 12bp, which has dampened the returns by nearly 2.0%.
Håvard Bjorå, IPD Director, Nordic Region, said, "Offices gained pole position ahead of the retail and industrial sectors in 2012. Historically retail returns have been the strongest, although the last few years have revealed a slowdown, which is further pronounced in 2012. Nevertheless, it is encouraging that market rental value growth for the important office sector improved in 2012, reflecting increased tenant demand.
"We have also noted that valuation yields for all segments have shifted upwards, although marginally. Offices in Stavanger show winning returns this year and for the last three years, but weakest returns are found in offices in the Oslo fringe, as well as offices outside main cities and in shopping centers.”