The eurozone crisis pushed second-quarter returns on pan-European real estate funds into the red for the first time since early 2010, according to the latest research from IPD.

The eurozone crisis pushed second-quarter returns on pan-European real estate funds into the red for the first time since early 2010, according to the latest research from IPD.

Total returns at the NAV level amounted to -1.1% in Q2, the first negative return to be recorded after several quarters of marginal growth.

Although the underlying direct real estate returns were stronger, with a total return of 0.9% for the quarter and 5.2% for the last 12 months, they also represented deterioration on previous quarters due to negative capital growth in most European markets.

‘It is the combination of negative value growth and the impact of leverage that has caused a widening of the spread between direct real estate and NAV returns,’ IPD said.

The weakest performance was experienced in Spain, Belgium, Portugal and Italy where direct real estate values fell by 8.1%, 4.6%, 4.1% and 3.7% respectively during the quarter, highlighting the weakness of southern Europe. Over the year to mid-2012, values have fallen by a total of 12.5% in Spain and 8.3% in Italy.

The stronger economies such as France and Germany saw relatively smaller declines of 0.9% and 0.3% respectively for the quarter.

Over the year to mid-2012, negative growth in France and Germany were the main drag on returns, given that nearly 50% of the funds’ assets are in these two markets. In France, direct property values fell by 2.6% and in Germany by 0.2%.

By contrast, assets outside the eurozone fared better, particularly in the Nordics and the UK. Sweden saw an 8.1% increase in values over the past year, with the UK recording an even stronger 11.8% over the same period.