Now well over 2 years into the Eurozone financial crisis and its lingering effects are continuing to depress the performance of European property funds. According to IPD data for Q2 pan-European funds returned -1.1% in the NAV level and -0.1% on an annual basis. This, according to IPD is the first negative return since early 2010, but they said returns have been only marginally positive in the last few quarters.
However, according to IPD although direct real estate returns were stronger at 0.9% on the quarter and 5.2% on the year, even this is down on previous quarters due to falling capital values in most European markets. The report said that the spread between direct real estate returns and net asset value returns is widening because of negative value growth and the impact of leverage.
Spain, Belgium, Portugal and Italy were the west performers, with direct values falling 8.1%, 4.6%, 4.1% and 3.7% respectively during the quarter. Over the year to mid-2012, values have fallen by a total of 12.5% in Spain and 8.3% in Italy.
However, with over 50% of the funds' assets in France and Germany, these two relatively stronger markets have been largely responsible for dragging down returns in the last year according to the report, with direct values in France having fallen by 2.6% and in Germany by 0.2%. Markets outside the Eurozone have performed better in terms of values, with the report highlighting the performance of Sweden and the UK where values have grown by 8.1% and 11.8% during the past year.
During the most recent quarter, Industrial was the top performing in the quarter with total return of 1.8%, closely followed by Retail at 1.6%. Offices were the weakest performing sector, with a total return of -0.5% driven by a drop in values of 1.9%.