On a five-year annualized basis to December 2009, direct property returned 21.0% - outperforming equities and marginally underperforming property loan stocks.

This emerges from the release on March 31 of the Investment Property Databank (IPD) index.

While it was outperformed by equities and listed property in 2009 (both of which recovered off a substantially lower base), the South African commercial property market recorded a total return of 8.7% for the year ending 31 December 2009.  The IPD Property Index measures ungeared total returns to directly held standing property investments. As expected, a consistent income return of 8.4% was supported by marginal capital growth of 0.3%.

The 8.7% total return was roughly in line with OMIGPI Research forecasts of 8.1%. On a sector level, retail is leading the recovery with a total return of 8.8% and was the only one of the three main sectors to register positive capital growth.

Industrial and office property capital growth declined by 0.6% and 1.2% respectively. OMIGPI Research continues to back retail property to outperform over the next three years. However, we acknowledge that there will be a divergence in the returns of the dominant centres and those of peripheral centres.

While the total return of 8.7% is well off the boom time returns of 2005-2007 and the moderate 13% recorded in 2008, it should be viewed in the context of the international commercial property market where South Africa is tipped to once again be a leading performer. Almost half the countries benchmarked by IPD have released annual returns to December 2009 with the second best performer at this stage being Switzerland at 5.5%.

According to Old Mutual Investment Group Property Investment's (OMIGPI) head of Research Phil Barttram: "Our research suggests that South Africa lags the commercial property cycle of the developed world and our forecasts point to the bottoming of the local cycle during the course of 2010 with a recovery nearing 2008 levels by the end 2011".