EUROPE - European non-listed real estate funds posted positive performance last year for the first time since 2007.

The INREV annual index registered a NAV-based return across non-listed funds of 7.4% in local currency, up from a 7.7% loss in 2009.

UK funds led the upturn, delivering 14.9% compared with a 3.8% return (-8.2% in 2009) across continental European funds. French non-listed vehicles returned 11.2%.

INREV senior research manager Casper Hesp told IPE: "The UK is a liquid, transparent market. It saw the crisis hit first, but it was also the first to see an upswing. It's more difficult for multi-country funds invested in Southern and Eastern European markets."

The index, published this week, shows value-added funds narrowing the performance gap with core funds.

Core funds returned 7.5% last year, compared with 7.3% for value-added funds, which underperformed core funds by 11.6% in 2008 and 8.7% in 2009.

"What's interesting," Hesp said, "is that you see value-added funds almost outperforming core funds. It's a reflection of the positive market correction."

Otherwise, the year-end figures delivered few surprises from an index that has seen a consistent quarterly trend.

INREV attributed year-end performance to income returns rather than growth in capital values, in line with findings of the fourth-quarter index published last month.

It is unclear from the figures whether lower gearing across funds is the result of fund manager intervention or rising capital values. 

Gearing in value-added funds decreased from 55.8% in 2009 to 51.6% in 2010. In core funds, it fell from 38.9% to 34.3%.

"Within the index, gearing levels are going down as a result of the credit crisis having a negative impact on highly geared funds," Hesp said.

"Upcoming regulations like Solvency II might further decrease these gearing levels."