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October 21st, 2005, 01:37 AM
Results from IPD Portugal 2004
Return on real estate rising again in Portugal
Last year, the Portuguese property market exhibited an total return (income return plus capital growth) of 10.6% which represents an increase on previous year’s figures. Portugal remains thus amongst Europe’s best performing real estate markets, overtaking the French market which in 2004 had a return of 10.1%. The retail segment remains the best performing segment and was the only one, besides the office market, to exhibit any growth in 2004. This data was extracted from the IPD (Investment Property Databank) Portugal survey and concern the return on direct investment in real estate assets throughout 2004.
The total return of real estate investments in Portugal last year showed an improvement with respect to the 10% figure recorded in 2003, the year when the market exhibited it poorest performance since IPD began surveying Portugal (2000). The growth of 0.6% between 2003 and 2004 is due to an improved capital growth, which was pushed upwards by the slight improvement in property value, which in 2003 had contributed significantly for the fall in real estate return. The capital growth component grew from 2,5% in 2003 to 3.6% em 2004, and was the main factor contributing to the growth of the total return on investment, since the income return exhibited a negative variation with respect to the previous year. Although it still represents the largest contribution to total return, representing 6,8% of the 10,6% of total return in 2004, it dropped 0,4% with respect to 2003. The rental value growth continued to slow down in 2004, despite remaining positive in all the sectors surveyed. A special reference should be made to the recovery of offices and industrial segments, which in 2003 had exhibited a negative variation of income return.
Retail is the best performing sector
The retail sector, which represents about 46% of the IPD Portugal index in value terms, remains the best performing sector amongst the property markets surveyed by IPD. The sector comprises shopping centres and other retail and generated returns of 12,9%, exhibiting once more a positive growth (up 1,1% on the 2003 figure, a year in which it had dropped 5,6%). This performance was positively influenced by improved capital growth (5,0% in 2004 compared with 3,8% in 2003), with the income component remaining at 7,6%. The drop in yields and increased income return were the main factors that influenced the good performance of the capital growth component
In the offices segment, total return reached 7,7% and, despite being the segment with the poorest performance of the four sectors surveyed, it was also the one that exhibited the largest positive variation in 2004, influenced by an improved capital growth (-0,6% in 2003 against 2,0% em 2004), the latter resulting from a drop in yields and increased income return. The offices segment – which corresponds to 27% of the index in value terms – thus reverses the downward trend it had been exhibiting since 2002, despite a slight drop in income return that resulted from lower occupancy rates.
The industrial segment (which corresponds to 10% of the index in value terms) was the one that exhibited tha largest drop in return, falling from 11,4% to 8,2% in 2004, as a result of the significant decrease in capital growth (from 4,0% to 1,9% in 2004) and a slight decrease in the return on rents, at 6,1%. The sector defined as Residential & Others also performed worse than in 2003. It was, nevertheless, the second best performing segment in terms of return. In 2004, it exhibited a return of 9,1% (less 2,3% than in 2003), and remained one of the sectors with the best performance in the country.
Return on real estate rising again in Portugal
Last year, the Portuguese property market exhibited an total return (income return plus capital growth) of 10.6% which represents an increase on previous year’s figures. Portugal remains thus amongst Europe’s best performing real estate markets, overtaking the French market which in 2004 had a return of 10.1%. The retail segment remains the best performing segment and was the only one, besides the office market, to exhibit any growth in 2004. This data was extracted from the IPD (Investment Property Databank) Portugal survey and concern the return on direct investment in real estate assets throughout 2004.
The total return of real estate investments in Portugal last year showed an improvement with respect to the 10% figure recorded in 2003, the year when the market exhibited it poorest performance since IPD began surveying Portugal (2000). The growth of 0.6% between 2003 and 2004 is due to an improved capital growth, which was pushed upwards by the slight improvement in property value, which in 2003 had contributed significantly for the fall in real estate return. The capital growth component grew from 2,5% in 2003 to 3.6% em 2004, and was the main factor contributing to the growth of the total return on investment, since the income return exhibited a negative variation with respect to the previous year. Although it still represents the largest contribution to total return, representing 6,8% of the 10,6% of total return in 2004, it dropped 0,4% with respect to 2003. The rental value growth continued to slow down in 2004, despite remaining positive in all the sectors surveyed. A special reference should be made to the recovery of offices and industrial segments, which in 2003 had exhibited a negative variation of income return.
Retail is the best performing sector
The retail sector, which represents about 46% of the IPD Portugal index in value terms, remains the best performing sector amongst the property markets surveyed by IPD. The sector comprises shopping centres and other retail and generated returns of 12,9%, exhibiting once more a positive growth (up 1,1% on the 2003 figure, a year in which it had dropped 5,6%). This performance was positively influenced by improved capital growth (5,0% in 2004 compared with 3,8% in 2003), with the income component remaining at 7,6%. The drop in yields and increased income return were the main factors that influenced the good performance of the capital growth component
In the offices segment, total return reached 7,7% and, despite being the segment with the poorest performance of the four sectors surveyed, it was also the one that exhibited the largest positive variation in 2004, influenced by an improved capital growth (-0,6% in 2003 against 2,0% em 2004), the latter resulting from a drop in yields and increased income return. The offices segment – which corresponds to 27% of the index in value terms – thus reverses the downward trend it had been exhibiting since 2002, despite a slight drop in income return that resulted from lower occupancy rates.
The industrial segment (which corresponds to 10% of the index in value terms) was the one that exhibited tha largest drop in return, falling from 11,4% to 8,2% in 2004, as a result of the significant decrease in capital growth (from 4,0% to 1,9% in 2004) and a slight decrease in the return on rents, at 6,1%. The sector defined as Residential & Others also performed worse than in 2003. It was, nevertheless, the second best performing segment in terms of return. In 2004, it exhibited a return of 9,1% (less 2,3% than in 2003), and remained one of the sectors with the best performance in the country.