EUROPE - Investor sentiment among the unlisted real estate funds community in Europe has deteriorated since the end of 2008 to the extent that most believe markets will not improve before 2011.

Latest survey results from the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) suggested most investors and fund managers have changed their expectations since last year but they believe it is unlikely that European real estate will have improved by the end of 2010.

Sentiment in the non-listed real estate funds market is dictated by uncertainties related to the underlying property market, valuations and ongoing financing issues, concluded INREV's latest market activity survey.

Despite the subdued confidence over the short-term, the long-term outlook is positive, as 94% of respondents said they expected the market to improve in five years' time.

"What we see is a difference in the rebound between the different real estate asset types," said Lisette van Doorn, outgoing chief executive at INREV.

"Listed real estate is already experiencing considerable capital inflows and the same applies for direct real estate. Non-listed property funds are trailing the other real estate types in the property cycle. Since the beginning of this year they have only attracted 14% of the equity committed to real estate. However, investors are considering commitments into non-listed property funds, as there a considerable number of new fund launches and existing fund investment opportunities in due diligence. This may indicate that investors are anticipating opportunities to emerge for non-listed funds not too far in the future," she added.

Uncertainty about the property market, valuation issues and financing difficulties are the main reasons why investors have slowed the take-up of new investments. Yet almost half of fund managers (48%) said they were more confident that they can execute transactions at appropriate prices.

The majority of INREV's respondents (85%) said they continued to have confidence in the non-listed property fund model, although fund managers were slightly more optimistic than investors.

"Although fund managers are still spending most of their time on managing existing funds, this is slowly changing," said Lonneke Löwik, director of research and market information at INREV.

"We see that fund managers are reacting to opportunities in the market with some of last year's suspended funds being reintroduced and the first new funds appearing," she said.

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