Rteurns in the South African property investment sector hit the lowest level since 2009 after falling from 13% in 2015 to 11.1% in 2016, a 190 basis point decline, the latest IPD South Africa Annual Property Index shows.

NYSE-listed MSCI, which compiled the report, noted this week that “it was hardly” surprising, as commercial property returns closely track the general economy; however, the sector has delivered consistently since the inception of the index in 1995.

The index shows 2016 income returns remaining steady at 8.3%, while capital growth fell from 4.4% in 2015 to 2.6% in the year under review, with an improved base rental growth of 6.2% offset by negative yield impact.

“Even given the decline in total returns, the sector has once again proven its resilience by providing real returns in 2016,” said MSCI executive director Phil Barttram, pointing out that investors have benefited from stable incomes, founded on the sectors’ contractual income base and aggressive cost management.

Overall, industrial property was the top performing sector during the year with a total return of 13.6%, outperforming retail at 12.6%, while the office sector continued to struggle on the back of subdued capital growth and was particularly hard hit in 2016 with a total return of 7.6%, he noted.

At a property segment level, inner city and decentralised offices were among the worst performing segments for the year with total returns of 7.5% and 7.7% respectively, the report showed.

“The top performing segments for the year were high-tech industrial property and neighbourhood shopping centres, which produced total returns of 18.1% and 20.3% respectively.

“The index results show that the performance of the South African property investment sector continues to hold up well despite the prevailing low gross domestic product growth environment,” added Nedbank CIB property finance managing executive Robin Lockhart-Ross.

The IPD South Africa Annual Index, which has outperformed the MSCI SA Equities Index and the JP Morgan Bond Index over one-, three-, five- and ten-year periods, was sponsored by Nedbank Corportate and Investment Bank and is based on asset level data collected from a sample of 1 450 properties with a total capital value of R296.6-billion as at December 31, 2016.