EUROPE - Stability in the face of euro-zone uncertainty pushed last year's return on German residential property to a 15-year high, according to newly released IPD data.

The DIX German Property index, which measures the performance of more than 4,000 properties worth €50bn, posted a total return of 5.5% across subsectors, compared with an industry forecast of 4.8%.

Most of the increase came from income return, at 5.3%, although the index also turned in 0.2% positive capital growth, up from -0.9% the previous year.

Residential, the best-performing subsector, returned 7.8% overall, 3.2% of it in capital growth.

Industrial returned 7% and retail 6.1%.

Office trailed despite improved performance at 4.3%, up from 3.1% in 2010.

IPD Germany managing director Daniel Piazolo attributed the sector's performance primarily to macroeconomic factors.

"Germany's relatively positive economic outlook comes out of euro-zone uncertainty over the past couple of years, when investors saw it as the heart of stability," he said.

"Property doesn't lose as much value as other asset classes, and residential performs best because it's the most crisis-secure sector."

He also pointed to rent real estate's relative advantages compared with government bonds that three years ago appeared risk-free but now carry a risk premium previously attached to asset classes such as real estate.

The 'inflation myth' - institutional investors' perception that real estate acts as a hedge against inflation - also contributed to property's attractiveness as an asset class.

"It's unproven, but investors might still be prepared to give a greater allocation to real estate," Piazolo said.

Despite economic recovery in the past few years after a decade of post-unification stagnation, he pointed to significant regional variations in the internal dynamics of the German economy.

"The biggest cities, such as Berlin, Hamburg and Munich, are doing well," he said. "But we have B cities and C cities that are not, and regions that are losing populations.

"It would be far too risky just to say that Germany did quite well and therefore is the right destination for next year's investment. You might see a high return in some areas but not in others."

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