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INREV Performance Measurement and Benchmarking Committee
Aviva Investors Real Estate
According to the one of the first releases of data on the first quarter capital values are now increasing in the European commercial property market, having stagnated in the last 4 quarters despite increasing investment.
According to the latest release of the INREV Quarterly Index, capital growth from non-listed real estate funds in continental Europe increased to 1.0% in local currency in the first quarter. In the last 4 quarters performance in European funds has been driven by improving income returns, while capital values have stagnated.
Unfortunately the INREV index shows that the increase in capital values in the first quarter was offset by a slight drop in income returns due to higher year-end dividends paid out by continental European funds in the last quarter of 2010. This left total returns for non-listed funds in continental Europe at 1.6% in Q1 2011, unchanged from Q4 2010.
"The resurgence of capital values in continental Europe reflects the broader economic recovery in many of these markets. Our Quarterly Index suggests some encouraging news for investors but it is too early to confirm this as an upward trend for the remainder of 2011," said INREV senior research manager Casper Hesp.
Total returns for all of Europe's non-listed funds were also 1.6%, but in this we see a reduction from 1.9% in Q4 2010. However, this is still the fourth consecutive quarter in which total European returns have been between 1.6% and 1.9%, which is a clear testament to the market's stabilisation in the non-listed sector.
"The strengthening capital growth shown in the INREV Quarterly Index for the first quarter of 2011 mirrors what we are seeing in the non-listed Pan-European funds we have invested in on behalf of our clients," commented Catriona Allen, co-chair of the INREV Performance Measurement and Benchmarking Committee and Fund Manager at Aviva Investors Real Estate Multi Manager.
According to the index, France and Germany remain two of the strongest markets in Europe in terms of the performance of commercial real estate investments. According to the INREV index capital values across non-listed funds in both countries increased by 1.9%, and total returns of 2.7% in Germany and 2.2% in France.
UK non-listed property funds saw returns fall from 2.4% in Q4 2010 to 1.6% in Q1 2011, but income returns remained stable at 0.8%. As a result the data is being viewed as representative of market stabilisation following great volatility in the past 3 years.
Multi-country funds which are strongly represented (41% in terms of number of funds) in the INREV index saw a slightly less impressive performance, with 1% capital growth, and 1.6% returns.
On a sector-by-sector basis industrial/logistics and retail were the two strongest performers, with total returns of 2.2% and 2.1% respectively. Residential also did well with total returns of 1.4%, and office brought up the rear with a still-respectable 0.8%.
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