European commercial real estate funds outperformed their US counterparts last year, according to MSCI.

The firm’s IPD Global Property Fund Index recorded strong growth in both the UK and Continental Europe.

MSCI said net returns of 13.7% from pan-European funds last year were well ahead of their US counterparts, which recorded 11.7%.

UK funds were the best performer in IPD’s index, with returns of 15.9%.

MSCI said the European property market had experienced a turnaround over the past 18 months.

A slowdown in the UK and the “moribund nature” of the Continental European market in 2012-13 meant returns were close to zero.

“Since then, the surge in the UK 
and in other European markets means the index significantly outperformed the global average during 2014,” MSCI said.

It said high returns in the UK last year were “well recognised” but that Continental Europe suffered from less frequent and more smoothed valuation regimes.

“Relatively high leverage for the European funds coupled with weak property-level returns depressed fund level performance between 2011 and 2013,” MSCI said.

Although leverage has started to boost European fund performance, there are also significant improvements in some of direct markets.

While MSCI said its low sample size for most of the European countries meant results needed to be “treated with caution”, the UK was the best-performing market, at 17.2%, based on the assets within the UK component of the IPD Global Property Fund Index.

Most other European markets also performed strongly.

Germany and Central and Eastern Europe (CEE) posted the strongest returns in their history within the index, at 12.3% and 13.6%, respectively.

The performance was a significant improvement in the previous year, when they returned 7.2% and 3.5%, respectively.

Although France and Southern Europe’s returns remained lower than in the run-up to the financial crisis, they turned a corner, MSCI said, returning 9.2% and 11.9%, respectively.