We have not witnessed the rapid re-pricing of real estate that is being experienced elsewhere

Investment in South Africa's commercial real estate market produced double-digit nominal total returns of 13%, the SAPOA/IPD Property Index for 2008 shows. However, once last year's high inflation rate of 11,5% is factored in, these returns equate to inflation-adjusted ‘real returns' of just 1,3% for 2008.

The South African performance was driven by robust income growth. Capital growth, though was markedly slower than in 2007, but was nevertheless positive across all sectors, which further underpinned the result.

IPD South Africa MD Stan Garrun, who spoke last week at the SAPOA/IPD Property Index launch 2009, in Johannesburg, said that the relative resilience in South Africa could, in part, be ascribed to economic effects lagging the international cycle and less turbulent financial markets.

"We have not witnessed the rapid re-pricing of real estate that is being experienced elsewhere, certainly not on the same scale. Property fundamentals are still coming through quite strongly. However, it is important to bear in mind that the inflation-adjusted total returns, at 1,3%, were modest compared with the average annualised real return of 9,3% over the last 14 years," added Gurrun.

Last year's performance was led by the industrial-property sector, which recorded 18,1% total return, followed by offices with 14% and retail at 11,1%.

Income returns for industrial and offices were 9% and 9%, respectively while retail provided 7,8% to produce the all property average income return of 8,3%.

The strength of capital growth differed more widely across the sectors. Industrials led the way, returning 8,4%, followed by offices, at 4,6% and retail, at 3,1%, to produce an average of 4,4% compared to 17,5% last year.

All property yields moved out by 20 basis points over the 12 months, ending December 2008 at 7,7%.

Compared to other asset classes, South African direct property outperformed equities and property equities. In 2008, equities returned -23,2% according to the JSE All Share Index, while the JSE PLS Index and the JSE PUT Index returned -2,3% and -9,7%, respectively.

However South Africa property returns lagged behind the bond markets, which returned 17%, as measured by the All Bond Index.

Long-term property returns remain high, with three and five annualised total returns at 22,4% and 24,1%, respectively. Over the full 14-year history of the index, annualised total returns now stand at 16,2%.