Weak Currency Staggers Global Retail Returns

MBA (7/1/2008 ) Murray, Michael
Total global property returns dropped 3.2 percent last year, based on local currency, with retail properties weakest in the United States and United Kingdom, said the 2007 IPD Global Property Index.

The U.S., U.K., Japan and France experienced declining returns from 2006 after peak returns reached 14.7 percent. Only Germany improved on its 2006 returns despite a decline in capital values.

The report said that because the U.S. dollar and the sterling—or British pound—deteriorated during the year, the property values showed higher returns while the yen and euro returns were lower because the currencies appreciated through the year.

Retail was the weakest sector returning 8.6 percent and “reflected faltering consumer confidence in the U.S. and U.K., where it was the weakest form of commercial property,” the report said, adding that the strength and stability of the euro supported the retail sector and made it the strongest sector in many mainland European markets.

For all denominations except the U.S. dollar, the last three years’ total return was better than the five- and seven-year averages.

Office properties represented the strongest sector in the index—a total return of 14.2 percent—as global business service growth remained up through most of the year. Australia, the U.S., France and Canada stood out with strong office growth of countries in the index.

The report said the credit crunch “just started to impact real estate values by December and was largely confined to the U.K.”

The strongest national market returns last year—on a global basis—were in South Africa, which returned 27.7 percent. The Pacific Rim countries—Korea, New Zealand, Australia, Canada and the U.S.—followed in national market returns.

Ian Cullen co-founding director at IPD, said the survey highlights the “complex and far from synchronized process of decline from the 2006 world market peak return, requiring greater transparency."

“The major real estate investment management houses have all now started to accept global mandates and so need transparency on a comprehensive and consistent basis stretched beyond national boundaries,” Cullen said.