Cross-border European property funds continued their recovery in 2011, spurred on by underlying direct property market returns of 6.8%, according to the latest IPD Pan-European Property Fund Index figures.
The fund index returned 4.1% through the past year. This was the second year of positive returns, IPD said.
Although the rate of return was lower than the UK pooled fund index, at 7.1%, and the US NCREIF ODCE fund markets, at 16%, this reflects the greater long term stability of the pan European funds, driven by geographic diversification, a high income return of 6.5%, and low exposure to volatile markets such as the UK.
The index also reports quarterly results for the first time for a Pan European sample, both at the fund Net Asset Value level, and the direct level (based on the underlying valuation of properties within the participating funds). The underlying direct real estate performance for Q4 2011 was 1.7% with an overall end investor return of 0.9% at the NAV level.
Doug Rowlands, head of Multinational Services at IPD, said: “This new index and the data behind it offers a huge step forward in the level of detail available for managers and investors alike, helping us to better understand European real estate performance.”
With Germany and France comprising nearly half of the index, stable performance in these countries in 2011, of 8.4% and 7.0% respectively, supported the continuing recovery in returns. The largest drags on performance continued to come from some of the southern European markets, particularly Spain (0.6%) and Italy (-4.1%), with Netherlands providing a stable return of (4.2%). At the other extreme, there was particularly strong performance in Sweden (14.6%), the UK (11.8%) and CEE (8.9%) all having a positive effect on returns.
The IPD Pan-European Property Fund Index is tightly restricted to open-ended cross-border funds which employ a full quarterly open market valuation regime in accordance with the UK Royal Institution of Chartered Surveyors’ red book or similar standards. It is thus the first investable index that can compare fund and asset level performance across the European market, and as such represents a significant step forward in improving the transparency, increasing understanding of the drivers of performance and risk, and building investor confidence in this way of gaining access to European real estate. The index is based on a peer group of 16 open-ended funds with a total value of €11.2bn invested across Europe.