Dutch pension funds reported substantially higher returns on their direct real estate returns in 2020 than on their investments in listed real estate equities during the same period.

Despite the heavy losses in segments of the real estate market as a result of the coronavirus lockdowns, the value of Dutch pension funds’ direct real estate investments as reported to pensions regulator De Nederlandsche Bank (DNB) increased by 1% to €83.5bn compared with a reported decrease of 7% to €56.7bn for listed real estate. The FTSE EPRA NAREIT Developed Europe Index, a benchmark for European real estate shares, made a -10% return in 2020.

Metal industry scheme PMT, for example, made a -9.8% return on its listed real estate portfolio, while its direct real estate investments reportedly returned +1.5%. Fellow metal scheme PME, which invests only in direct real estate, reported a +2.4% return.

PFZW, the healthcare pension fund, recorded over 11% fall in listed real estate equities, whereas its direct investments returned +0.7%.

According to a PFZW spokesperson, the discrepancies can partly be explained because the fund’s direct portfolio is “heavily invested in residential and logistics real estate”, sectors that have been less adversely affected by the coronavirus pandemic, unlike offices and retail.

Return differences between listed and non-listed equities are not uncommon because listed equities are inherently more volatile than direct investments because they respond more strongly to market developments, said Iryna Pylypchuk, director of research and market information at the European Association for Investors in Non-Listed Real Estate Vehicles (INREV).

“In listed real estate, future developments have often already been discounted for in share prices. This is not always the case for direct real estate,” the INREV director told IPE Real Assets.

Lag in valuations

Zach Gauge, a European real estate analyst at UBS Asset Management, believes there is “almost certainly a lag in valuations on the direct side”.

“Some companies of course have leverage and that can partly justify the difference. But we tend to find in downturns when there is a lack of transactions that valuation houses tend to underplay what’s happening in the market. Especially in retail, rents are coming down and there are more vacancies. We haven’t seen this reflected in valuations,” Gauge said.

UBS AM estimates retail valuations in the eurozone have come down by some 6% in 2020.

“Compare that to the UK, where valuations have come down by 18%,” Gauge said, adding that “the UK tends to be closer to market reality than Europe because it’s a is very active market for its size, with more transparent transaction data. In other markets in Europe, there are fewer transactions, and the information is not always readily shared.”


Retail assets are not the only real estate segment being hit by the pandemic. Offices have also been greatly affected as working-from-home has become the new normal.

“Listed office real estate prices have come down significantly, although they have rebounded somewhat this year, but, on the direct side, there have not been a lot of price corrections,” according to Svitlana Gubriy, the head of global REIT funds at Aberdeen Standard Investments.

“In general, the [office] market hasn’t been particularly forthcoming in terms of big discounts,” Gauge said. He added: “I would have expected more distress, but clearly the low-interest-rate environment and the sector not being massively overleveraged has meant there have been few forced sellers.”

Gubriy said there still is a lot of uncertainty about the role of offices in working life in the post-coronavirus period, but she believes especially investors in English-speaking countries will have to brace for further write-downs while Asia should prove relatively resilient.

“In Asia, people tend to live in small houses, the commute is not that bad and the culture requires people to be in the office,” Gubriy said.

“London, Sydney, New York and San Francisco will be impacted most, as I expect a 10-15% decline in office demand.” 

PMT and PME said they may adjust their 2020 returns.

“Valuations that we receive during the first quarter and that relate to the period until 31 December 2020 will be implemented in our annual report if these are substantial according to the accountant,” both funds told IPE Real Assets.

Gubriy and Gauge expect 2020 losses will probably only become visible in 2021 and 2022 accounts.

“It’s not unreasonable to expect that listed real estate will perform better this year than direct real estate for this very reason,” Gauge said.

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