IPD Global has released its Italian and Spanish Indices. In both countries the industrial sector was the strongest market sector in 2006.
Industrials relegate Retails to second place in Italy
The Italian All Property total return for 2006 was 8.0%. This return is actually the lowest posted since the beginning of the index in 2003 and constitutes a decrease of 80 basis points on 2005. Property under-performed the equity market for the fourth year running, which returned 23.6% in 2006 although property did out-perform the bond market, which returned -0.7%.
The industrial sector was the strongest sector with total returns of 12.0%, an improvement of 380 basis points on 2005. Retails held the top spot in 2005 with an 11.4% total return, but have been relegated to second place with an 11.5% total return in 2006. Other property took third place with a total return of 6.4%, the lowest posted by the sector since 2003.
The weakest sector was office properties which dominate the index, achieving total returns of 6.3%, the lowest posted by the sector since the start of the index.
Capital growth in 2006 was 2.6%, a fall of 10 basis points on 2005, whilst income return fell to 5.2% from 6% in 2005. Market rental value growth decelerated slightly to 2.5% in 2006, following growth of 2.8% in 2005.
Davide Manstretta, Country Manager at IPD for Italy, said, "Italian commercial property continues to show attractive returns driven by a strong capital growth and a healthy income return. Investment activity is strong, supported by increased demand from local and international institutional players. This led to a further yield compression in all the sectors, with gross initial yield now at 5.8% at All Property level."
Industrials leading Spanish property market
Total returns on property in Spain continued to accelerate, reaching 17.4% for 2006. These results were significantly higher than the bond return of -0.4% and the inflation rate of 2.7%. However equities outperformed all property, with total returns of 31.8%.
For the second year running, the industrial sector led the market, with a 19.2% total return, followed closely by the retail sector at 18.8%. The office sector continued its recovery in 2006, achieving total returns of 17.1%.
Capital appreciation of 11.3% formed the bulk of the strong total returns in 2006. Capital growth was strongest in the retail sector at 12.1%, with the medium-sized shopping centres attracting the highest capital increases. The office and industrial sectors both achieved capital growth of above 11.0%, whilst residential and mixed-use properties had capital growth of 7.2% and 6.6% respectively. The strong capital growth pushed income returns lower, down from 6.1% to 5.5% on all property over the year.
Managing Director of IPD France, Christian de Kerangal, said, "The total return of 17.4% shows that the Spanish real estate market has maintained its position among the best performing European markets. 2006 was another big year for the industrials, while across the sectors, yields continued to fall in line with rental value growth and strong demand from international investors."
Launches of the Indices
The IPD Italian Annual Launch will be on the 17th May 2007 in Milan; the IPD Spanish Annual Launch will be on the 8th May 2007 in Madrid.