Italian commercial property delivered a 1.5% total return over the second half of last year, which contributed to an annual 2.5% return, according to the IPD Italian Bi-Annual Property Index. The second half of the year represents a 40 basis points improvement. The annual return is comprised of a -2.8% capital depreciation and a 5.4% income return. Capital depreciation eased over the second half of 2009, by 40 bps to -1.2, while income returns remained stable at 2.7%.
The IPD Italy Biannual Property Index which includes 20 institutional portfolios with an aggregate capital value of 9.7 bln. at December 2009 represents the first indication of direct Italian property market performance ahead of the authoritative IPD Italian Annual Property Index which will be published on 21st April.
Over the second half of 2009 the industrial market delivered the highest income return and the steepest capital decline, at 3.4% and -1.5%, respectively. The retail sector delivered the shallowest capital decline, at 90 basis points, and a 2.6% income return, while capital growth and income returns for offices was -1.3% and 2.5%.
Rents held firm over the second half, showing only negligible declines in the office markets of Milan and Rome, while vacancy rates also remained stable.
Luigi Pischedda, Country Manager Italy at IPD, said: "The Italian commercial property market continues to remain insulated from the worst of the re-pricing seen elsewhere in Europe and beyond. The relatively tight supply of quality stock in the major market sectors has, to some extent, supported the occupier market during a period where the wider economy has been tested. Rental growth ceased falling over the second half of last year, while yields remain stable and capital depreciation is easing. The Bi-Annual Index figures support the picture revealed by last month's IPD Italian Pooled Property Funds Indices, which showed a 50 basis point annual return for last year."
Compared to the other asset classes over the second half of 2009, the direct Italian property market only outperformed property shares, which delivered -5.4%. However, over three years, direct property returns on the IPD Italian Bi-Annual Property Index overtakes equities, delivering a 4.1% compared to -13.6%, as measured by the FTSE MIB Index.