The IPD Italy Annual Property Index, released today, recorded a total return of 2.5% over the full year 2013, 90 basis points higher than that achieved in 2012. Although the capital growth continued to tread in negative territory (-3.1%), Italian real estate confirmed a stable and robust income return, at 5.7%.
Private unleveraged property investments compare unfavourably against traditional asset classes, as equities have recorded a 12-month return of 16.1% in 2013, followed closely by real estate stocks, at 15.8%. Bonds posted a total return of 8.7% over the same period.
Looking at the longer term, direct property recorded an average total return of 2.8%pa over 3 years, 3.1%pa over 5 years and 5.1%pa over 10 years, outperforming both equities (1.4%pa, 3.5%pa and 0.8%pa respectively) and real estate equities (-11.3%pa, -4.9%pa, -5.2%pa respectively), and scoring higher average returns than bonds (5.6%pa) over a 10-year horizon.
Luigi Pischedda, Senior Associate and Head of IPD Italy commented: “IPD’s latest Italian Index confirms recovery trends already observed in our latest publications, the Biannual Property Index and the Property Fund Index, which are characterised by a lower rate of decline in the market values and by stable income returns.”
Across the main sectors, industrial property recorded the highest total return, of 3.3%, followed by retail at 3.1% and office at 1.8%. Capital value declines were least dramatic for retail assets, with a -2.7% 12-month capital value growth; office values decreased on average by 3.2%, whilst industrial properties took the hardest hit at -3.8%, despite yielding the highest income return of 7.4%. The income return for retail and office was respectively 5.9% and 5.1%.
Luigi Pischedda continued: “Property fundamentals continued to convey mixed signals: we recorded yet another 12 months of declining rental values across the board and high vacancy rates especially in the peripheral area of Milan, but also lower yields, which have moved in for most segments at the December 2013 snapshot.
“Although the question about whether the market has finally bottomed-out is still unanswered, we are able to report two useful pieces of information. Firstly, the decline in values since the crisis has well surpassed in magnitude the growth we have recorded up to 2007. Secondly, most of the sale transactions we have monitored in 2013 achieved a price in the +/-10% range compared with the latest valuation. In more than half the cases, the price obtained was higher than the latest valuation, which is a noticeable result in a buyer’s market.”
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