IPD yesterday (19 March 2009) published the IPD Norway Annual Property Index for 2008. According to the index, returns from investments in Norwegian commercial real estate fell to -4.7% last year, following three years of successive 15% plus returns.
Property significantly outperformed the equity market, which returned -54.1% according to the Oslo Benchmark (OSEBX) Index, but lagged behind the bonds markets, which returned 10.5%, as measured by the Oslo five year Stat Index (ST5X) Index. The total returns were also lower than neighboring Sweden, which returned -3.3% in 2008 and Denmark, which recorded 3.1%.
The most significant drag on performance over 2008 was the swing in Office capital values, which fell by 12.5%, reflecting similar falls seen in other European countries in what has consistently proved to be the most volatile sector in this global property re-pricing cycle. Capital value falls in Industrials were next, falling 7.4%, followed by Retail, which fell by 5.6%. The overall total return for Norwegian property was insulated by robust income return across all sectors, which produced an All Property return of 5.7%.
The capital value falls are reflected in the total returns for the three principal sectors with Offices, Industrials and Retail returning -7.4%, -1.7% and -0.3%, respectively. Over the longer-term annualised total returns still place property as the top performing asset class compared to equities and bonds. Over three years, property returned 9.8%, compared to equities, at -12.1%, and bonds, at 4.5%. Over five years property, equities and bonds returned 11.0%, 5.7% and 5.1%, respectively while over nine years since the index's inception returns were 10.3%, 1.9% and 6.6%, respectively.
Håvard Bjorå, Norway Country Manager IPD Norden said: "Yields have now - after five years of compression - started to rise across all property sectors in Norway. The yield shift alone would have cut the values by 15%, but this was partially counterbalanced by a robust rental growth in the retail sector. The capital values dropped by 9.9% in Norway 2008, which was a bit more than in the other Nordic countries, but much milder than those experienced in the UK and Ireland."