NORDICS - Investments in the Nordic real estate markets are expected to deliver negative returns for 2009, according to a new report from Aberdeen Property Investors.

But the fund manager said income returns were expected to offset negative capital appreciation of -6.4%, bring total returns to -0.6%.

"Even though the contraction of real economies is slowing or showing signs of bottoming out, prospects for rental markets remain weak in the short-term," the report said.

"Market rents are forecast to decline for all sectors in the region into 2010, before most markets are expected to bottom out in 2011."

Aberdeen also projected a total return of 7.2% for all property sectors in the Nordics over the next five years, starting in September 2009.

This forecast was based on capital values stabilising just the first half of 2010, followed by a return of real rental growth not before 2012.

Prime property yields are likely to peak earlier than previously expected as capital growth resumes, the report added.

"Increasing investor appetite means yields are peaking a little earlier than expected and at lower levels, offering stronger short-term performance," said Aberdeen. "But our five-year return forecast has not changed significantly, as this leaves less room for recovery.

"Investors seem to be finding confidence in the recovery of other asset classes and by the fact that there is limited evidence of distressed sales. There have been several transactions in recent months confirming this trend," the real estate manager added.