Income returns drive growth for non-listed funds in Q4

Strong income returns of 1.3% helped the non-listed real estate funds sector deliver improved performance in the final quarter of 2010, with total returns up on the third quarter from 1.6% to 1.9%, according to the latest INREV Quarterly Index.

The INREV Quarterly Index shows no, or very slow capital growth across geographic regions. In fact, funds in continental Europe have experienced a backward slide in capital values slipping from 0.4% in Q3 to -0.1% now.

'Our latest Quarterly Index shows a mixed picture. Total returns have increased over the past two consecutive quarters which is good news for the non-listed real estate funds sector overall. But the lack of capital growth hints at a generally weak recovery in markets across continental Europe,' said Casper Hesp, INREV's Senior Research Manager.

In local currency, total returns trended upwards on the previous quarter with funds in continental Europe reaching 1.5% (up from 1.2%), driven by strong income return, and UK funds hitting 2.4% (up from 2.2%) signaling a stabilization of the market. Gains were also seen across fund styles. Value-added funds rose sharply from 1.6% to 2.4%, thanks largely to strong capital growth of 1.2%. Core funds reached 1.7% (up from 1.6%).

Overall income returns rose from 0.7% to 1.3% in Q4 with funds in continental Europe moving up from 0.7% to 1.6% over the same time period, and income returns in the UK remaining at 0.8%. This quarter's positive income returns from continental Europe compare to a more stable picture seen in the UK, which can be explained by the fact that a substantial number of funds in continental Europe pay out dividends at the end of each year whereas a majority of UK funds pay dividends on a quarterly basis.

Funds in the UK saw the best capital growth at 1.6%, almost equalling the performance of the previous quarter (1.5%), and following strong performances of 5.5% and 2.6% in Q1 and Q2, respectively. These capital growth figures suggest that the UK market is stabilizing, following periods of higher volatility.