IPD fund indices show north-south divide

IPD real estate fund indices for Europe are starting to show a pronounced north-south divide, with vehicles investing in the Nordic region turning in the strongest returns through the last four six-month periods, and those focused on Italy the weakest, with their underlying values falling significantly during the last year.

The Nordic funds generated total returns of 4.7% in the first six months of this year, while Italy turned in a negative performance of -2.3%. Pan-European funds were also in the red with -1%.

German fund returns - as generated by open-ended vehicles - have meanwhile remained a beacon of stability contrasting significantly with the more volatile returns generated by German open-ended funds investing outside Germany, many of which are now closed for redemptions.

The two other large European markets - France and the UK - meanwhile appear to be diverging, with French funds having staged something of a recovery in the first half of 2012, while UK vehicles show no signs of ending the downward trend in performance which began in the latter part of 2010. A similar trend – though at a lower level – is seen for Pan-European vehicles, which have a significant UK component and which are valued in line with RICS guidelines.

In the first half, France booked total returns of 2.9% compared to 1.4% for Germany 0.9% for the UK.

Commenting on the performance of the funds across Europe, IPD concluded that uncertainty in the Eurozone has continued to plague real estate funds in 2012, with weak performance continuing in most European markets. However, the direction of movement – and whether or not returns have now hit the bottom – still looks very unclear. 'Property fund markets are reflecting the fragile state of economic fundamentals in most countries, with inevitable uncertainty amongst property occupiers feeding through into the market rental levels upon which fund valuations and returns are based. These valuation effects are being compounded by the lack of transactions activity in direct real estate markets, particularly outside core property sectors and locations.'