EUROPE - The INREV index returned -26.8% in 2008, down from -2.7% in 2007, as European non-listed real estate funds continued to feel the effects of the global financial crisis.

The UK contributed heavily to the overall negative result as it saw its returns in euros falling to -49.6% from -13.2%, but results from the ex-UK index showed the continent to be suffering significantly with returns falling to -9.8% from a positive 11.9%.

Andrew Smith, chief investment officer at Aberdeen Property Investors and chairman of the INREV benchmarking committee, said the results were "pretty shocking".

"In 2007, the UK took the full brunt of the crisis, but the results now show the impact of the downturn spreading to continental Europe," he said.

Smith also said when broken down into capital growth and income return, the index revealed the main contribution to the negative returns in 2008 came from capital value declines.

"This is a result of financing problems and market confidence and activity falling in 2008," he said.

INREV launched a local currencies index to remove the impact of foreign exchange fluctuations, which posted returns  of -20.2% in 2008, down from 2.2% in 2007.

Lisette van Doorn, chief executive at INREV said this sub-index would enable investors to "undertake better performance attribution analysis".

The results of a sub-gearing index, which showed the impact of debt on fund performance, suggested low-geared funds actually performed worse than medium-geared funds, with returns of -17.6% and -16.6%, respectively.

Smith said on paper this was surprising, but explained that the large contribution of UK funds to the index (48% by number of vehicles) was to blame, because they are predominantly low-geared.

Portugal (1.6%) and the Netherlands (1.1%) were the only countries to produce positive returns in local currencies for 2008, while the UK (-34.7%) and Sweden (-23.9%) were the worst performers.

Data for the INREV index was collected and calculated in-house for the first time, though Ernst & Young reviewed the methodology.