US real estate has “cooled” to its slowest quarter in five years, according to MSCI.

The ratings agency said lower capital growth in the sector was a product of decreased activity.

MSCI recorded a total return of 2.03% in the first quarter of 2016 in its PREA/IPD US Quarterly Property Fund Index-All Funds.

The figure compares with a total return of 3.23% in the previous quarter and 3.22% recorded in the same quarter last year.

It is also the lowest total return recorded since 2010 for the index, which measured funds with a net asset value of $190bn (€168bn) as of March.

Jim Valente, executive director at MSCI, said: “The lower capital growth in the first quarter signals a timeout call by investors.”

However, their enthusiasm for prime real estate – particularly in choice markets – shows no signs of cooling, he said.

“Investors’ confidence in real estate has continued to gain this asset class greater allocation in investment portfolios,” Valente said. 

“The index continued to outperform other major asset classes in the long term and to expand its spread over government bonds.”

While income return changed slightly compared with the previous quarter, a decreased capital-value growth contributed to the lower index return.

The index outperformed equities, bonds and property equities bonds on a one-year, three-year and five-year comparison, including across all the three measured levels – fund level and net fund, which are both leveraged, and Direct Property level, which is unleveraged.