IPD has published the IPD Portugal Annual Property Index for 2008. According to the index, investment in Portuguese commercial real estate was 2.6% last year, compared to 12.2% in 2007. The returns are the first sub double-digit figures recorded since the inception of the index in 2000.
Portuguese commercial property outperformed the equity market, which returned -49.6% as measured by the PSI 20 Index, but underperformed bonds, which recorded 3.6%, as measured by the JP Morgan 7-10 Year Government Bond Index.
Retail, which has been the top performing market over the past eight years, produced the worst total return in 2008, at just 80 basis points, compared to 2007's 14.8%. By contrast, Offices returned 4.7% and Industrials, which recorded the highest returns for the year, achieved 4.9%.
Across the three key sectors, the decline in capital values, driven by rising yields, accounted for the performance in Portugal's commercial real estate market. The sharpest falls were experienced in the Retail sector, at -5.1%, followed by milder falls by Offices and Industrials, at -1.0% and -1.5%, respectively.
Income return for 2008 was, at 6.1%, level with 2007 returns, and sustained across all sectors ensuring total returns for 2008 remain in positive territory. However, rental values have slipped into negative figures for both Offices at Industrials, both at -1.3%, while Portugal's Retail market has seen growth, at 1.9%. All Property initial yields moved out by 30 basis points over the 12 months to end of December 2008, ending the year at 6.0%.
Longer-term total returns remain stronger, with three, five and nine-year annualised returns at 8.9%, 9.5% and 10.5%, respectively.
Luís Pedro Francisco, Portugal Country Manager at IPD, said: "The returns for the Portuguese market are consistent with expectations as well as with the pattern of performance in other Continental property markets, driven by widespread rising yields which has in turn placed downward pressure on capital values.
"The scale of property re-pricing within Portugal is far shallower than in other countries, including the UK and Ireland, due to its more modest growth in the preceding 'boom years' of heady capital appreciation. It is worth noting, however, that over the long term, returns from the IPD Portugal Annual Property Index outperform both equities and bonds on a nine year total returns annualised basis, with the three asset classes returning 10.5%, -4.2% and 6.1%, respectively."