GERMANY - The IPD Germany Annual Property Index showed Germany's property returns proved more resilient during the downturn than most European real estate markets - a situation which the body argues is likely to draw more institutional investors into the market.
German real estate returned 3.5% last year, down only 1% from 2007 thanks to significantly lower rises in capital values during the years leading up to the economic downturn.
Dr. Daniel Piazolo, managing director of IPD Germany, said: "Indeed, the total return achieved over a turbulent 2008 demonstrated the stability of the German property market's rental income: the basis for a solid income return."
Retail was the top-performing sector, returning 4.5%, followed by the residential sector and office sector, which returned 4.4% and 2.8% respectively.
The industrial sector suffered the steepest decline in capital values and generated the weakest returns, at 1%.
According to Piazolo, Germany's property market is likely to attract more attention from pension funds looking for stability and mid- to long-term returns.
"Even with the financial crisis, the argument for international diversification will continue and, in that respect, I do believe that Germany will be in the eye of more and more international institutional investors. Pension funds from all over the world will be looking to see if now is a good time to enter the German market," he argued.
The residential sector, in particular has caught the attention of pension funds, according to Piazolo.
"Residential investing for yields wasn't really on the radar of institutional investors but now there is a good feeling," continued Piazolo.
"There is more demand for residential and I think it's very interesting for pension funds, especially because residential has very stable components. This was reflected in last year's IPD figures."
Within the office sector, Stuttgart was the best performing city, returning 5.7%. Hamburg and Munich followed with 4.6% and 4.5% respectively. But Frankfurt was the weakest performing city, returning only 90 basis points.
All property yields moved out 10 basis points and ended at 5.7% in 2008.
In stark contrast, UK property returned -22.1% and Ireland -34.5%.
Long-term German property returns remain strong, with annualised returns of 3.1% over three years and 2.2% over five years.
Property significantly outperformed the equity market in 2008, which returned a staggering -40.4% according to the DAX Index, but was behind bonds, which returned 10.1% on the REXP Index.
The IPD Germany Annual Property Index covers a total of 2,481 properties from 55 funds, valued at €45.3bn in December 2008.
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