Spanish commercial property delivered a positive total return in 2010 of 4.9%, according to the IPD Spain Annual Property Index, a substantial improvement on 2009's -9.3%.
Capital growth was negative for the third consecutive year, at -1.2%, driven by continued yield expansion, although values fell at a considerably lower rate than 2009's -13.3% and 2008's -7.8%. This milder capital depreciation, together with improved income returns, at 6.2%, combined to deliver the first positive annual total return for two years.
The driving force behind the headline total return figure was improved income return, reflecting a 160 basis points improvement on 2009's 4.6%.
Spanish returns were similar to those of its Iberian neighbor, Portugal, which posted a positive return of 4.2%. Despite lingering economic difficulties in both countries, commercial real estate performed well, ending a two-year period of negative returns.
Retails were the top performing sector in 2010, delivering a total return of 7.7%, a substantial improvement on the -7.2% recorded in 2009. It was the only sector to deliver a positive capital growth, at 1.4%. Offices lagged behind, but still delivered positive returns, at 1.9%, with performance diluted by a -3.7% capital depreciation.
Industrials trailed the rest of the market for the second year in a row, and was the only sector to post a negative total return, of -0.6%, due to its substantial capital decline of -7.4%.
Spanish commercial property significantly outperformed the domestic equity market, which returned -12.9%, and bonds, which delivered -5.5% in 2010. Over a five year period property remains the best performing asset class, returning 3.8%.
Elsa Galindo, Country Manager at IPD Spain, said: "Spanish GDP growth in 2010 remained negative, at 0.1%, but this was nevertheless a substantial improvement on 2009's -3.7%. This recovery is reflected in the Spanish commercial real estate market: while capital depreciation remains, it has slowed considerably, allowing returns back to positive territory."