German property returns reveal minor correction in values

Investment in German real estate returned a total return of 3.5% in 2008, just one percentage point lower than in 2007, according to the IPD Germany Annual Property Index for 2008. The marginal fall on the prior 12 months is in sharp contrast to the significant re-pricing which most other continental European markets have experienced.

The IPD attributed the milder falls in returns to Germany’s much lower rises in capital values in the years preceding the credit crunch. Returns were led by Retail, at 4.5%, followed by the Residential sector, at 4.4% and Offices at 2.8%. The Industrial sector produced the weakest returns, at 1.0%, driven by the steepest capital value falls, which were -6.2% for the 12 months to December 2008. All property capital growth was much milder, at -1.4%.

Within Offices - which accounts for 47% of the EUR 45.3 bn databank - the top-performing city over 2008 was Stuttgart, with returns of 5.7%, followed by Hamburg and Munich which achieved 4.6% and 4.5%, respectively.

Completing the Offices segments were Cologne, at 3.8%, Dusseldorf, at 2.4%, while the weakest returns were produced by Frankfurt, returning just 90 basis points. All property yields moved out 10 basis points over 2008, ending the year at 5.7%. In comparison, total returns in the UK were -22.1%, while Ireland returned -34.2% over 2008.