IPD today published the SFI / IPD Swedish Annual Property Index for 2008. According to the index, total returns for the year fell to -3.3%, a substantial fall from the 14.7% return achieved in 2007. Swedish property outperformed equities but lagged behind bonds, which returned -39.5% and 15.7% respectively.
The main driver of these poor returns was a significant rise in yields of 13.3% or 69 basis points over the 12-month period. This effect was partly offset by a strong market rental growth of 4.0% y/y. The All Property rate of capital growth came in at -7.9%. While this fall is much milder than those experienced in the UK and Ireland, it still represents significant asset re-pricing when compared to the 9.5% rise in values recorded in 2007.
Income return for 2008 was 4.9%, slightly up from the record low return of 4.8% in 2007. Capital values fell farthest in the Office sector but the worst performing sector was Residential with a -3.7% total return, due in part to an income return of just 3.4%. Industrials performed best with a total return of -0.4%, followed by Retail and Offices at -2.6% and 3.5% respectively.
Christina Gustafsson, Head of IPD in the Nordic region, comments: "Yields have now - after five years of compression - started to rise across all property sectors in Sweden. The shift alone would have cut the values by close to 12.0%, but this was partially counterbalanced by a robust rental market. Investors reported fairly strong rental growth of 4.0%, which was roughly in line with increases linked to the contractual indexation of rents in commercial leases in Sweden." (The rent indexation is based on the inflation rate reported at October 2008 which was 4.3% up).