European non-listed real estate funds delivered their best performance since 2006 last year, according to INREV.

The industry body’s annual index recorded an 8% return, the highest since before the financial crisis.

The figure is also more than double the 3.2% total return achieved in 2013.

Henri Vuong, INREV’s director of research and market information, said: “These impressive data justify investors’ continuing belief in, and commitment to, the benefits of non-listed real estate funds, especially in the face of low bond yields and the continuing ‘lower for longer’ interest rate environment.

“The mood is clearly upbeat.”

Capital growth accounted for most of the improved total performance at 4.5%, compared with a 0.3% fall in 2013.

Income returns remained stable at 3.5%.

“While there’s no sign of a bubble,” Vuong said, “the consistent rise in capital values and dwindling supply of quality real estate assets across core markets in Europe may yet raise questions about the prospects for sustained outperformance over the longer term.” 

The UK delivered significant outperformance, driving overall gains, with an annual total return of 16.7% in 2014 – nearly twice the 8.6% figure recorded for the previous year.

However, INREV said the index revealed a general uplift across Continental Europe, which rose from 0.7% in 2013 to 3.7% in 2014.

Southern European funds rose from -6.7% in 2013 to -1.1% in 2014, while funds in Western Europe hit their highest level since 2006, with a total return of 11.2%.

Investors’ increased appetite for risk was reflected in performance figures for value-added funds, which reached 8.9% in 2014 versus 7.9% for core funds.

Industrial and logistics posted a total return of 17.9%, making it the best performing sector.

Retail returned 9.6%, compared with 7.5% for offices and 4.6% for residential.