Global non-listed real estate funds showed a dramatic uptick in 2013, with overall returns of 8.08 per cent, according to the Global Real Estate Fund Index, a combination of indices published by INREV, ANREV and NCREIF.
The global gains were driven largely by positive performances in Asia at 9.22 per cent and the US at 13.23 per cent. Europe also performed well with the INREV Quarterly Index posting total returns of 3.53 per cent in 2013, compared with 0.50 per cent in 2012.
Growth in Asia was helped by improved performance in Japan, while the US saw gains from improving market conditions. Performance in Europe was driven by the UK, which delivered returns of 8.77 per cent - a significant jump from the 0.28 per cent it produced in 2012. Elsewhere in Europe, CEE funds saw returns of 1.98 per cent, while in Continental Europe returns were 0.99 per cent - up from -0.90 per cent in 2012 - and Southern Europe hit returns of -11.86 per cent.
“While the headline numbers in Europe are impressive, the detail in the INREV Quarterly Index indicates a more mixed picture. The main story is about outperformance in the UK, but Southern Europe is still struggling. If real estate is in anyway a proxy for economic recovery, these results underline the view that we’re witnessing a two-speed momentum,” says Casper Hesp, INREV director of research and market information.
Much of the improved performance in Europe was the result of capital appreciation, which increased from -3.62 per cent to -0.04 per cent in 2013. But there was also a strong contribution from income returns, which increased from 3.20 per cent to 3.58 per cent.
In general, returns in Europe also benefitted from the significant inflow of capital from Asia and the US during 2012/2013. This is reflected in the INREV Quarterly Index for Q3 and Q4 2013, which posted consecutive improvements in returns that correlated to an uplift in capital inflows.
In Europe, the industrial and logistics sector stood out as a star performer delivering returns of 5.62 per cent on the back of growing awareness from investors of its long-term income-producing benefits. Returns in the retail sector followed on at 2.83 per cent.
Core funds in Europe outperformed value added funds since 2008.
However, the INREV Quarterly Index showed that the predominance of core is waning with value added funds starting to outperform core at 3.87 per cent and 3.46 per cent respectively in 2013.
“This is an interesting narrative. The INREV Quarterly Index shows value added funds rapidly gaining ground and starting to overtake core. It suggests a measure of increased confidence and risk appetite that could be re-calibrating investors’ default setting. Time will tell,” says Hesp.