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German property returns fall to 4.2%

GERMANY – Returns in the German property market fell from 5.9% to 4.2% in 2002, according to Investment Property Databank.

Vacancy rates in the local market increased to 5.6% of gross income in 2002, and the rate of sustainable rental growth weakened to 0.5%. Capital values fell by 1.1% marking the first annual drop since 1998.

Across the market the falls in capital value remained even – between 0.9 and 1.4%, and any variations in sector returns in the year were a function of differences in the rate of income return, says IPD.

Offices saw total returns fall to 4.6% in 2002, down from 6.2% the previous year. The rise in office rental values drew to a halt as the vacancy rate rose to 6.5% of gross income, and capital values fell by 0.9% reversing the increase of 2001. Retail was the best performing sector with total returns of 5.1%. Residential properties returned three percent.

In terms of locations, Cologne, Duesseldorf and Frankfurt saw the greatest returns in the office sector, with five percent or higher. Returns in Berlin remained low at 3.6%, although Munich and Stuttgart were the worst performing office markets.

Over a seven-year period, however, the German property market has outperformed German equities. Property returns stand at 4.7% between equities at 3.6% and bonds at 6.4%.

IPD is headquartered in London, and collects information on property performance. The total value of properties included in the German property databank is 48 billion euros.

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