The latest readings from INREV's Pan-European Quarterly Asset Level Index give grounds for optimism for the performance of non-listed real estate, with total returns reaching 1.35% in the first quarter of 2021.
Capital growth reached 0.42% in the quarter, compared to 1.06% in Q4 2020. INREV said that these results indicate a return to sustainable growth and a continuing trend of investor confidence that was first reported in Q3 2020, following the shock and subsequent market turbulence triggered by the Covid-19 pandemic.
On a fund level, the Q1 2021 total return reached 1.24%, with capital growth increasing to 0.77%, the highest quarterly level in almost two years, according to the INREV Quarterly Fund Index. Core funds continued to outperform value added strategies, delivering an average total return of 1.28% in Q1 – slightly lower than the 1.65% achieved in the previous quarter. However, for the first time since the end of 2019 average total return for value-added strategies tipped into positive territory rising to 0.56% in Q1 2021 up from -0.15% in Q4 2020 and narrowing the performance gap with core strategies.
The first quarter of 2021 saw a broad-based recovery in performance across most of Europe. Following the uncertainty of Brexit and the initial impacts of Covid-19, the UK saw positive performance, delivering a total return of 1.73% at an asset level. This was underpinned by an increase in capital growth to 0.67% for the same period.
Germany maintained a strong, stable performance with a total return of 2.32% and the highest capital growth among all European countries at 1.45%. Similarly, France delivered a healthy total return of 1.40%, according to the Inrev Quarterly Asset Level Index.
However, the Netherlands proved a notable exception to the overall positive picture in Europe. A sharp increase in Dutch transfer taxes on residential investments hindered the overall performance of the INREV Netherlands Quarterly Asset Level Index due to the substantial size of the residential sector. Capital growth turned negative to -0.77%, and the Q1 total return slid to 0.10%.
The Nordics topped the geographic total return performance rankings with 2.34% in Q1 2020. This figure was significantly boosted by numbers from Sweden where asset-level total return hit 3.35% and which accounted for 52% of the Nordics sub-index.
The different asset categories, too, saw mixed fortunes. industrial/logistics retained its position as the strongest performing sector with a total return of 4.50% in the first quarter of 2021. It reflects investors’ seemingly insatiable appetite for the sector, which looks set to continue. Offices became the second-best performing sector in Q1, with an asset level total return of 1.07%.
This might mirror increased investor confidence in a return to offices, as part of a widely anticipated new hybrid working model, INREV suggests. The consequences of COVID-19 continued to plague the retail sector, which delivered a total return of -0.60%, marking the seventh consecutive quarter of negative performance at an asset level. However, capital growth stood at -1.63%, which is the best result for retail since the end of 2019 and an indication that the sector’s downward trajectory could be levelling out. Total return for residential in Q1 2020 dropped to 0.11% – down from 1.89% in the previous quarter, heavily influenced by the developments in the Dutch residential market.
Iryna Pylypchuk, INREV's director of Research and Market Information, said: "These results point very much toward the green shoots of recovery and a continued growth in confidence among European non-listed real estate market participants. That said, as the vaccination roll-out continues across Europe and we put the worst of the COVID-19 pandemic behind us, the dispersion in performance at a sector, sub-sector and geographic level is expected to stay and even accelerate in some cases."
