Italian commercial property delivered a 5.2% total return in 2010, a strong improvement on the 0.8% recorded in 2009, according to the IPD Italy Annual Property Index. However, capital values continued to decline, now for the third consecutive year, at -0.5%.

Capital depreciation has seen values fall 7.8% year on year in the period from 2008 to 2010, positioning Italy amongst a number of European commercial property markets still experiencing capital decline in 2010.

Falling rental values contributed to the negative capital movement, dropping a further -0.7% in 2010, while a mild expansion in yields was recorded. Nevertheless, vacancy rates fell for the first time since 2007, to 7.3% last year, and income return increased by 10 basis points, to 5.7%, the highest income return seen in the last five years.

At the sector level, Industrials outperformed both Offices and Retails, delivering a total return of 7.1% for the year, driven entirely by a 7.2% income return. Offices and Retail recorded capital depreciation for the year, at -0.6% and -0.4% respectively, while Industrial capital movements stabilised at zero. Three years of negative capital movements, since the start of the financial crisis, have seen Retail lose 10.1% of its value, while Offices and Industrials recorded a cumulative -6.1% and -10.2% respectively.

'The figures hint at a new phase in the property cycle, where declining values seem to have bottomed out. Early signs of growth are appearing in some segments, but this is very much dependent on geography and asset class,' said Luigi Pischedda, IPD's Country Manager for Italy.