SA's commercial real estate market returned to double-digit performance in 2010, with a total return of 13.3%, compared with the revised 8.8% (8.7%) return in the previous comparable period.

According to the latest South African Property Association/Investment Property Databank property index, the headline total return was still dominated by the income component, which was 8.9%, while capital growth was 4.1%.

After 18 months of little-to-no capital growth, confidence and fundamentals began their recovery in the second half of 2010, during with period the bulk of the year's capital growth was delivered. Stronger retail sales growth and signs of a return to discretionary spending helped to drive capital growth in the retail sector to 4.4% - the highest of any sector.

Office and industrial capital growth - at 3.9% and 3.2% respectively - were slightly more subdued, in part due to concerns over fundamentals in the secondary markets, the data showed.

Above inflation rental growth continued to underpin the majority of returns, and rose by 130 basis points to 7.4% in 2010, though yields movements remained conservative across sectors.

While the optimism surrounding the retail sector was reflected in the slight 12 basis points yield firming, office and industrial properties saw a softening in yields, by seven basis points and 33 basis points respectively. A noticeable increase in the yield spread between market segments underlined the significant performance variation between prime and secondary assets.

Across the market, vacancies decreased from 7.4% in 2009 to 6.6% in 2010, but again, there was a clear split between prime and secondary assets. Large shopping centres and prime offices remain well let, but vacancies continued to rise in secondary markets, such as B- and C-grade offices and neighbourhood shopping centres. At the end of 2010, vacancies stood at 5.2% for retail, 10.6% for offices and 5.4% for industrial properties. - I-Net Bridge