Investment in Spanish commercial real estate returned -2.8% over 2008, according to the IPD Spain Annual Property Index. The figures are the first negative returns in the index's eight year history as well as a sharp reversal of fortunes from 2007's 12.9% return.
Property significantly outperformed the equity market, which returned -36.5% according to the Sociedad de Bolsas Index. However, returns were someway behind bonds, at 9.7%, as measured by the JP Morgan 7-10 yr Government Bond Index.
The worst returns came in the hard-hit Spanish Retail sector, returning -5.9%, followed by Offices, level with all property at -2.8%, and Industrial sector, which managed to post a positive return of 70 basis points. The returns were driven by the competing influences of negative capital value movements, with an all property average of -6.8%, and resilient income return, averaging at 4.3% across all sectors.
Capital values falls, driven by yield widening, was most pronounced in the Retail sector, at -11.0%, followed by Offices, at -7.6%, and the Industrial sector, at -5.6%.
Yields moved out in line with these capital value movements; Retail, Office and Industrial yields increased by 110bps, 60bps and 70bps, to end the year at 6.6%, 5.6% and 6.7%, respectively.
While far from the lowest returns recorded on the Continent so far, Spain's total returns were lower than neighboring Portugal, which posted positive returns of 2.6%.
By contrast, returns for the UK and Ireland last year, the hardest hit so far by falling capital values, were -22.1%, and -34.2%, respectively.
Elsa Galindo, Country Manager at IPD Spain, said: "The combination of internal problems within the Spanish economy namely, an already overheated residential and commercial real estate market, high unemployment and the risk of deflation and the scale of the global financial crisis has accelerated the adjustment of the domestic property market. As the Spanish economy deteriorated, the decline of the property market gathered momentum over last year."