MSCI Inc., a leading provider of investment decision support tools worldwide, has released the IPD Spain Annual Property Index data, which demonstrates further signs of a recovery in the commercial real estate market.
Spanish commercial property showed a 10.1% total return in 2014, a rise from 0.3% in 2013, and the first time the index has reached double figures since 2007’s figure of 12.4%, just before the country’s prolonged property crash and recession.
Elsa Galindo, Senior Associate, MSCI commented: “After many years of negative and sometimes cataclysmic return levels, favourable trends in macroeconomic fundamentals seem to have had a positive impact on confidence levels within the real estate sector. Capital values have increased, driven by the recovery in fundamentals and by the high liquidity existing in the market.”
She added: “Investors will hope that the 2014 Index results will mark an important part of the economic cycle as we see a gradual recovery both in the real estate market and in the Spanish economy as a whole.”
Overall, Spanish commercial property outperformed the domestic equity market, which returned 8.9% (Spain MSCI Index), but underperformed bonds, which delivered 24.5% (JP Morgan) in 2014.
The recovery in commercial property total returns was driven by a positive capital growth of 4.2% compared to -4.9% in 2013. This is the first time capital values have increased after six consecutive years of falls. Income return remained stable at 5.6%.
In line with 2013 results, Industrial was again the best performing sector with a total return of 14.4%. Retail again was the worst-performing sector but still experienced a total return of 9.7% - a sharp rise from the -1.5% reported in 2013. All sectors showed positive total returns thanks to their positive capital growth led by industrial which grew at 6.7%, followed by office at 4.7% and retail close behind at 3.1%.
The IPD Spain Annual Property Index measures ungeared total returns to directly held standing property investments from one open market valuation to the next. The index tracks performance of 400 property investments, with a total capital value of €11.5 bln as at December 2014. The market coverage is estimated to be around 40% - 50% with results dating back to 2000.