UNITED STATES - Real estate in the US has delivered the strongest performance for five years, posting a total return of 15.1% for the whole of 2010, according to Investment Property Databank (IPD).

Latest figures from the IPD US Quarterly Property Index show a dramatic turn-around in fortune for the market which produced a negative return of -18.7% in 2009.

The newly published results from the fourth quarter of 2010 mean that US real estate has seen three consecutive quarters of capital growth.

Capital values rose by 3.2% in Q4 2010, slightly below the 3.3% seen in Q3, although the latter was the strongest quarterly capital growth in IPD's 11-year index history.

The headline annual total return was the result of 7.6% capital growth over the year - which included a compounded 8.1% rebound in values since Q1 2010 - together with an income return of 7.0%.

The rebound has been driven by falling cap rates, which compressed throughout 2010 by 80 basis points to 6.3% at the all-property level.

The best performing sector was apartments, which returned 23.8% for 2010, an annual return eclipsed only once in the index's 11-year history, in 2005.

IPD said the sector's returns were driven by bull market level capital appreciation, which saw a 16.8% rise in values.

Simon Fairchild, managing director at IPD North America, said: "The continued decline of home-ownership in favour of rented-occupancy for a number of years, exacerbated on by 2008's collapse of Fannie Mae and Freddie Mac and thus mortgage finance and restricted housing stock have combined to create an exciting investment opportunity in the Apartment sector - evidenced by the strong annual returns last year."

The returns for the other three principal sectors were significantly lower than apartments, led by retail at 13.7%, followed by office at 13.4% and industrial at 11.4%.

Despite the dramatic U-turn, the US recovery remains much more modest than seen elsewhere. The first three quarters in 2010 saw capital appreciation in the UK of 14.5%, compared to 8.1% over the equivalent period in the US.
But the latest figures show that the US market movements continues to correlate with those of the UK with a nine-month lag.

The IPD US Quarterly Property Index measures $88bn (€63.9bn) worth of properties in predominantly core open-ended funds.

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