FRANCE/JAPAN - Commercial real estate returns in the French and Japanese property investment markets have quickly slowed to deliver lower returns, the IPD's biannual studies have revealed.

French real estate returns fell dramatically from 17.8% in December 2007 to a mere 0.6% in the first half of this year, while Japanese returns were down from 9.1% in May to 8.4% for the same period.

The IPD French Biannual Indicator measured the performance of 1,113 assets with a combined capital of €30.8bn and found an anticipated fall in capital values was the main reason for poor returns, as capital returns for the first half of the year stood at -1.9% compared to 11.8% for the 12-month period running until December 2007.

"During the first half of the year capital values fell across all market sectors with the explosion of Retail, which moved forward weakly," said Christian De Kerangal, managing director for IPD France.

"Nevertheless, rental growth remained positive across all main sectors, income growth actually increased modestly, and so income returns remained firm, albeit off a reduced capital base."

Despite the low figures, French property managed to outperform both equities and bonds in the first six months of this year, as returns in those sectors were negative at -19.3% and -0.8% respectively.

The retail property sector delivered the highest total returns with 4.3%, followed by industrials with 1.3% and offices with -1.1%.

Meanwhile, the IPD Japan Monthly Indicator, which calculates returns for the year to June 2008 based on 33% of properties in June and rising to 100% of properties in February, showed year-on-year capital growth veering towards negative territory at 3.3%.

Office property performed best with a total capital return of 8.4%, while the retail and residential sectors delivered negative returns of -1.8% and -1.0% respectively.

"The decline in the valuation of direct property looks sedate compared with the turbulent performance of Japan's REIT sector over the course of the week," said Kevin Swaddle, IPD director for Asia.

"The properties owned by the JREITs, and on which their income streams are ultimately based, have yet to see anything like the same level of distress in spite of regular mark-to-market appraisal."

The results also revealed properties for all real estate sectors fared worse if based outside of Tokyo.