Italian capital values fell steeper than first indicated: IPD

Commercial property capital growth in Italy totalled -3.3% in 2008, according to the IPD Italy Annual Property Index. This implies a steeper value correction than the Bi-Annual Indicator revealed earlier this month. According to the index, income returns were steady in 2008, at 5.4%, contributing to a 2.0% annual total return.

At the sector level, the steepest capital value decline was in the retail market, at -5.1%, hit significantly by falling consumer confidence. Industrial and offices capital growth, by comparison, totalled -3.5% and -2.0%, respectively, insulated by limited supply. In the office sector, the majority of stock is still within the city centres of Rome and Milan although the two city sub-sectors differed slightly in their resilience last year, with capital growth of -0.4% and -2.3%, respectively.

Quality stock in the industrial sector is similarly concentrated in a small number of industrial and logistic districts, and is traditionally the best performer in terms of income returns. In 2008, industrials for the fifth consecutive year led the way with highest sector income returns, at 6.6%, followed by retail, at 5.4%, while offices returned 5.0%.

Overall, the impact of yields on capital growth was -3.7%, with sector figures correlating to capital value movements: Retail saw the sharpest fall, of -6.0%, followed by offices, at -2.9% and industrial sector, with -1.0%. Annualised total returns over three, five and six years now stand at 6.4%, 7.3% and 7.8%, respectively. The 12-month total return from Italian real estate compares favourably to equities and property equities, which fell -46.1% and -52.4%, as measured by the MIB 30 Index and Italy DS Real Estate Index, respectively. However, property underperformed bonds, which returned 7.4%, as measured by the Unicredit Banca Mobiliare.

Luigi Pischedda, IPD’s Country Manager for Italy, said: 'The retail sector was the hardest hit by capital value falls in Italian commercial property markets last year. Unsurprisingly, shopping centres took the most pain among the segments, with capital growth for the year at -5.3%. This is, to some extent, explained by the fact that shopping centres tend to be anchored by one large retailer, which continue to be under increasing pressure due to falling consumer spending. In addition, smaller tenants within the centres are beginning to demand lower rents.'