Core pan-European fund returns slow in Q2

Returns on pan-European property funds slowed in the second quarter of 2013 as the modest growth seen in Europe's economy continued to impact on the performance of underlying real estate.

According to the IPD Pan-European Property Fund Index, quarterly fund returns slowed to 0.6% in Q2 from 0.9% in Q1, while underlying direct property returns slowed to 0.7% from 1.1% in Q1. The slowdown in direct returns was driven by a 0.9% fall in capital values, following a 0.5% fall in Q1. Direct property income returns remained steady at 1.6%.

Annual fund level returns, to June 2013, rose overall to 0.4%, after delivering a negative return of 0.1% in the 12 months to June 2012.

IPD said property performance varied considerably across Europe, in line with the divergence in forecast GDP growth between the best and worst performing European countries.

Since 2011 European property funds have been lowering their exposure to Southern Europe and the more troubled peripheral economies - with exposure to France and Germany now accounting for 50% of fund allocation.

However, the 0.6% quarterly fund level return compares unfavourably to European bonds and equities - which delivered 4.0% and 4.8% respectively in Q2 (MSCI/JP Morgan 7-10 Year). Over the 12 months to June equities retuned 20.9% and bonds 11.7%.