Swedish real estate returns fall to new low, SFI/IPD index shows

Total returns for Swedish property fell to -3.3% in 2008, a substantial drop from the 14.7% return achieved in 2007, according to the SFI/IPD Swedish Annual Property Index. Swedish property outperformed equities but lagged behind bonds, which returned -39.5% and 15.7% respectively.

The main driver of these poor returns was a significant rise in yields of 13.3% or 69 basis points over the 12-month period. This effect was partly offset by a strong market rental growth of 4% year-on-year. The All Property rate of capital growth came in at -7.9%. While this fall is much milder than those experienced in the UK and Ireland, it still represents significant asset re-pricing when compared to the 9.5% rise in values recorded in 2007.

Income return for 2008 was 4.9%, slightly up from the record low return of 4.8% in 2007. Capital values fell farthest in the office sector but the worst performing sector was residential with a -3.7% total return, due in part to an income return of just 3.4%. Industrials performed best with a total return of -0.4%, followed by retail and offices at -2.6% and – 3.5% respectively.

Christina Gustafsson, Head of IPD in the Nordic region, commented: 'Yields have now - after five years of compression - started to rise across all property sectors in Sweden. The shift alone would have cut the values by close to 12%, but this was partially counterbalanced by a robust rental market. Investors reported fairly strong rental growth of 4.0%, which was roughly in line with increases linked to the contractual indexation of rents in commercial leases in Sweden'.