Japanese property total returns were flat in 2008, says IPD

IPD released its 2008 results for the performance of the Japanese commercial property market. According to the IPD Japan Annual Property Index, total returns at the all property level were flat over 2008, at exactly 0%, compared to 12.0% in the previous year.

These returns underscore the accuracy of the unfrozen IPD Japan Monthly Indicator, which earlier this month revealed only a slight 0.3% returns differential, at -0.3% for 2008 based on a marginally smaller sample size. This corroborates the effectiveness of the Monthly figures as a lead indicator on Japanese property markets.

The Monthly Indicator is based on a subset of the Annual Index valued bi-annually. According to the Annual Index, capital return was -4.7% from 6.6% in the preceding 12 months, while income return held stable, at 4.9%, compared with 5.1% in 2007.

Although returns were flat in Japanese property markets, performance far outstripped both Japanese equities and J-REITS, which both suffered considerably in line with the wider global downturn returning -40.6% and -48.4%, respectively. Japanese bonds were the top performing domestic asset class of last year, delivering 4.7%.

The sector differences in annual returns differed markedly. The top performing sector was Industrial, at 4.5%, although it proportionally contributes the smallest weighting of the four main sectors. At the other end of the spectrum was Retail, which accounts for 17.0%, and delivered -4.5%, while Offices, the most significant sector in the Annual Index accounting for 57.7%, returned 1.9%. Residential returns were -2.6%.

The IPD Japan databank now covers 2,021 properties with a capital value at the end of 2008 of YEN 9.0 billion.

Toshiro Nishioka, Managing Director at IPD Japan, said: “Flat total returns in the context of the market environment last year is an encouraging sign as we approach the second half of 2009. Property markets in Japan peaked at the end of 2006 and although have weakened in the succeeding two calendar years thereafter, performance has still been favorable in comparison to domestic equities and property equities.

“At the sector level, it is clear there remains quite a performance disparity which presents opportunities for fund managers to add value for investors through targeting the pockets of value.”

Source: IPD