The South African commercial real estate market delivered a total return of 8.7% in 2009, the SA Property Owners Association (SAPOA) and the Investment Property Databank said on Wednesday.

The SAPOA/IPD South Africa Property Index found that South Africa's high domestic annual inflation, relative to most mature global investment markets, at 6.3%, was such that the nominal total return for last year had eroded to 2.3%.

The nominal return comprised of a 30 basis points capital growth, the lowest since 2002, and a resilient 8.4% income return, both groups said.

"While nominal returns were strongly in the black, the figure marks the second consecutive year of performance decline in South African property markets following the boom years between 2004 and 2007, which peaked in 2005, at 29.8%," said Stan Garrun, MD of IPD South Africa.

"Given the state of the domestic economy and the relationship between the national real estate market and the wider global downturn, the real inflation-adjusted total return is still remarkably resilient," he said.

South Africa's performance was underpinned by strong net income growth, at 9.4%, and stable income returns of 8.4%, the latter only 8 bps down from 2008.

The strongest capital growth came was in the retail sector, at 0.9%, while at the other end of the spectrum offices declined the most by -1.2% and Industrial slid by -0.6%, Income returns for retail, offices and industrials were 7.8%, 9.2% and 9.2%, respectively. All property yields moved out by 25 basis points over 2009 to 8.1%, the SAPOA/IPD SA Property Index found.

It noted that South Africa had produced the highest nominal return of the 11 countries for which IPD has released results to date.

The UK market, which was the first to decline, delivered a 3.5% return in 2009 - a considerable turnaround from 22.1% in 2008.

By comparison in the US, the world's largest commercial real estate market, suffered a steeper negative return last year, at -17.5%, compared to 2008's -7.3%. "Throughout the rest of Europe, 2009 annual returns published so far have been broadly positive, the notable exception has been Ireland which delivered -23.3% return, while Netherlands returned -0.2%. Denmark returned 3.9%, Finland 3.8% and Sweden 1.4%.

"Elsewhere, returns in Canada were -0.3%; Australia were -2.2% and New Zealand at -4.1% - all of which were worse than in 2008," SAPOA and IPD said.

The index highlighted that relative to other asset classes, South Africa's direct property underperformed equities and listed property, but outperformed the bond market in 2009. "Over three years, direct property outperformed all other major asset classes.

Long-term property returns are still in double-digits, with three and five year annualised total returns at 16.2% and 21.0%, respectively. Over the full 15-year history of the index,
annualised total returns now stand at 15.9%," SAPOA and IPD said.

Stan Garrun, MD of IPD South Africa, said: "The 2009 index shows relative strength that can, in part, be ascribed to less severe financial disruption than in other markets and continuing solid property fundamentals - resilient rental growth and occupancy levels have been maintained while development has been minimal.

As a result, South African real estate has not been re-
priced to the extent it has in other mature property markets."

Source: I-Net Bridge