German returns fall for 2012, follow European trend

IPD Investment Property Databank recently released its German Annual Property Index at a briefing in Frankfurt, attended by REFIRE, which showed Germany following the European trend of falling total returns in 2012 versus the previous year.

Presenting the findings for the past year for Germany were IPD’s Dr. Nassos Manginas and Dr. Daniel Piazolo, who highlighted the strongly varying performance differences across both sectors and geographic regions within Germany for the year.

The key findings were: German property returned a total of 4.4% in 2012, a decrease of 0.9 percentage points compared with the results for 2011, but 0.8 percentage points above the 15-year historic annualised total return of 3.6%pa. German property also underperformed both equities at 30.1% (MSCI Germany equities) and bonds at 7.7%. However, on a 5-year historic view, property strongly outperformed equities with an annualised total return of 3.7%pa against -1.8%pa, the IPD data shows.

Dr. Daniel Piazolo, Managing Director of IPD in Germany, said, “It is quite remarkable that despite stable sustainable rental values, capital growth for German property fell slightly to -0.8% against 0.0% in 2011. However, this is still above the 5-year historic annualised capital growth of -1.4%pa. Income return of 5.2% was very close to the 5.3% shown in 2011 and completely matched the 5-year historic annualised income return of 5.2%pa”.

Across sectors, residential properties had the highest total returns of 7.4% as in 2011, followed by retail properties with 5.5%. The major underperforming sector was offices with a total return of 3.3%, mainly driven by negative capital growth of -3.1%. This performance is consistent with the long-term trend over the past 15 years, with offices being the underperforming sector in nine out of the 15 years.

Piazolo added, “There is a considerable difference in the performance between the various sectors but even more variations within sectors such as the office market. Offices in Berlin show a total return of -0.7%, whereas Munich demonstrates a remarkably high performance of 5.3%”.