Iberian commercial real estate returns are the best in a decade

Iberian commercial real estate returns are the best in a decade

As the index results now revealed by MSCI show, on the Iberian Peninsular the Spanish commercial real estate market showed the highest return in 2016: 13.3%, the second highest on the index of the last ten years in the country, surpassed only by the total return of 15% in 2015.

Meanwhile, the latest results from the IPD Portugal Annual Property Index confirm that the total investment return from Portuguese commercial real estate came to a total of 12.2% in 2016, the best result of the decade from the index since 2007. In comparison with the 11% total return of 2015, this result once more confirms the growth path being experienced currently in Portugal.

According to the MSCI, increased asset value (capital growth) was the main driver for the strong performance of Iberian commercial real estate in 2016, the result of additional yields compression and increases in rents across practically all sectors.

Again, Spain experienced the most accentuated capital growth: 7.8% in 2016, whilst in Portugal capital growth was 6.2% (compared to the 4.9% registered in 2015). However, it was in the Portuguese market that returns form rents performed best: 5.7%, compared to 5.1% in the Spanish market.

On looking closely at the types of assets with the best performance, the differences between the Iberian markets stand out clearly. While in Spain practically all classes of assets registered double-digit total returns in 2016, the same cannot be said in the case of Portugal. In Spain, Industrial was the best performing sector with a total return of 13.0%, followed by Retail and Office with 12.9% and 11.6%, respectively. Large shopping centres were the top-performing segment in 2016.

In Portugal, retail was the best performing sector in 2016, with a total return of 16.4%, but offices, which returned 3.1%, lagged by a substantial margin. Industrials meanwhile continued to deliver negative returns (-2.0%), despite improving since 2015.

Measuring unlevered total returns to directly held standing property investments from one open market valuation to the next, together the IPD Annual Property Indexes in Spain and Portugal analysed the performance of 70 portfolios with a global value of €27.7 billion.

The IPD Spain Annual Property Index tracks performance of 40 portfolios and 511 property investments, with a total capital value of  € 20.5 billion as at December 2016. The IPD Portugal Annual Property Index tracks the performance of 30 portfolios and 572 property investments, with a total capital value of EUR 7.2bn as at December 2016.

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