EUROPE - Spain experienced its second consecutive year of negative commercial real estate returns in 2009, while Germany and Switzerland remained relatively stable over the same 12-month period, according to Investment Property Databank (IPD).

Total returns in Spain worsened to -9.4% in 2009, following returns of -3.7% 2008, while total returns in Germany and Switzerland were 2.5% and 5.5%, respectively.

The headline result for the IPD Spain Annual Property Index in 2009 was driven by a record negative capital growth of -13.4%, the steepest decline in the index's nine-year history.

Over the past two years, since capital values starting falling, Spain's compounded capital has declined -20.2% to the end of 2009.

IPD said the drivers behind the capital depreciation were yield expansion across the databank's two dominant sectors - retail and offices - and the worsening macro-economic environment.

All three sectors saw a year-on-year deterioration in capital growth, led by the industrial market which fell 18%, followed by offices at -12.9%, with retail close behind at -12.6%.

Income returns were resilient at 4.6% across all sectors. But Spanish real estate significantly underperformed the domestic equity market, which returned 38.3%, and bonds, which delivered 4.6% in 2009.

Elsa Galindo, country manager at IPD Spain, said the poor real estate performance was exacerbated by negative economic growth  - GDP retreated to -3.6% in 2009 compared to 0.9% in 2008 - and increasing employment.

"The deterioration of the macro situation trickled down into worsening property fundamentals, resulting in the worst year for Spanish commercial real estate on IPD records," she said.

Meanwhile, the German real estate market suffered its steepest capital depreciation for three years in 2009, albeit at a modest -2.6%, while Switzerland stretched to an eighth consecutive capital growth, to generate a modest 70 basis points.

German capital depreciation in 2009 was driven by the two largest sectors in the index: offices which fell by -2.9%, and retail which fell by -2.9%.

The most significant market deterioration in 2009 came in the industrial sector which fell by -10.1% - marking the first-ever double-digit annual sector capital depreciation in the IPD German Annual Index 14-year history.

However, the influence would have been minimal on the all-property average, given that it represents only 5.9% of the Databank.

The residential sector was the only sector to deliver capital appreciation last year and for the fourth consecutive year, albeit it only just hit 1%.

In Switzerland, the positive capital growth over last year was driven by the retail sector, which delivered 1.5% last year, followed by the residential and office sectors, at 0.6% and 0.4%, respectively.

And for the second consecutive year, the industrial sector delivered capital depreciation of -1%.