Swiss, Austrian property returns rising at slower pace

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The total average return on Swiss property in 2013 was 6%, according to the latest data released by IPD in conjunction with consultants Wüest & Partner, slightly down by 80 basis points on 2012. Key changes were in the reduction of the rental yield from 4.4% to 4.2%, and a fall in price appreciation from 2.4% to 1.7%.

Heading the list of best sectoral performers was residential, which produced a total return of 6.5% (down from 7.1% in 2012). Next came retail real estate at 6.3% (down from 7.1%), and then office property at 5.1% (6.3%). Despite the slightly downward trend of the past two years, IPD says that the 10-year average total return on Swiss property is 6.2% per annum, underpinned by the stable net cash flow return of 4.7% annually.

The IPD/Wüest & Partner Index for Switzerland is based on analysis of 4,400 properties with an average total valuation of CH 88bn at end-2013. The IPD database is made up by value of 46% residential, Office at 29.4% and Retail at 18%.

Meanwhile, the IPD Austria Annual Property Index was also released last week, which shows a generally solid performance for the property market, albeit also slightly down on 2012. The index showed a total return on all property of 5.7% in 2013, some 50 basis points lower than the performance for 2012. Capital growth at 0.8% in 2013 was 0.4% lower than in the previous year, while income return remained stable at 4.9%.

Property underperformed equities, which delivered 9.3% (MSCI Austria) but outperformed bonds with -0.8% (Austrian bond index) in 2013.

Of all Austrian property sectors, retail and residential properties were the outperforming sectors in 2013 with 7.7% and 6.2% respectively, while the spread of performance for offices and industrials was between 4.6% and 5.2%.

A comparison of related shares shows that retails accounted for 22% of the total value of the Austrian databank, while offices made up more than 46% highlighting the difference in weighted performance.

Nassos Manginas, Vice President and Head of IPD Austria commented: “Performance in the Austrian real estate market over the last few years has been remarkably stable and primarily underpinned by a ten year annualised income return of 5% p.a. while capital growth had a positive but small impact on the overall pattern of returns. Sustainable and secure cash-flows have been the defining characteristic of the market generating a clear case for stable risk-adjusted investment performance against alternative investment options.”