Fall in Irish capital values four times European norm

Average capital values fell across Europe by –8.8 per cent in 2008 with the steepest fall in Ireland at –34.2 per cent while the UK dropped –22.1 per cent, writes JACK FAGAN.

EVERY COMMERCIAL real estate market in Europe experienced a fall in capital values in 2008 with the exception of Switzerland, according to the Investment Property Database (IPD) pan-European property index. In the case of Switzerland, there was growth of 1.2 per cent.

The index, now in its eight year, showed that capital values – measured in local currencies – fell on average by a record –8.8 per cent last year with the steepest depreciation in Ireland (–34.2 per cent) and the UK (–22.1 per cent).

Also in negative territory was Norway at –4.7 per cent and Sweden at –3.3 per cent and even Spain got away lightly at –2.8 per cent despite the fact that it has seen a property market crash.

Annual income returns in Europe generally rose over the 12-month period by 28 basis points to end the year at 5.3 per cent, contributing to a total return of –4 per cent.

At the sector level, negative capital growth was most pronounced throughout Europe in the industrial sector at –15.6 per cent, followed by retail at –12.3 per cent and offices at –8.7 per cent.

The impact of currency movements on the conversion of total returns was significant, according to IPD.

The decline in the value of sterling meant that returns in sterling were strong at 16.7 per cent. Conversely, the UK return when measured in euros was considerably weaker and brought down the pan-European total return in euros to –11.4 per cent.

Last year, on a total returns basis in every European market which IPD measures, government bonds were the strongest performer with equities the worst and property sitting in the middle.

Meanwhile, Jones Lang LaSalle reports that some core western European markets are now starting to see evidence of office yields stabilising as sentiment has begun to improve in a small number of markets.

Across the region, the pace of outward yield movements slowed in the first quarter of 2009 and in many markets yields stood still over the period, although this was typically on the back of large corrections towards the end of 2008.