Pan-European funds see returns weaken in Q1: IPD

Pan-European property funds recorded total returns at net asset value of just 0.1% in the first quarter of 2012, according to the IPD Pan-European Quarterly Property Fund Index. This resulted in a 12-month return to March 2012 of 2.1%; the lowest in nearly two years.

Although the underlying direct real estate returns were stronger, at 0.9% for the quarter and 5.9% for the last 12 months, they also represented a deterioration on previous quarters. The weakening of performance in Europe is in sharp contrast to the stronger performance in the US and Australia, IPD said.

The weakest results were experienced in Spain and Italy where values fell by 3.2% and 1.7% respectively during the quarter. Despite these declines, the pan-European funds have positioned themselves to have a relatively low exposure to Southern Europe at 6% compared with 9% for the market as a whole.

'The turmoil and weakness in Southern Europe had a relatively minor direct impact on overall performance. Instead it’s the broader implications of the sovereign debt crisis on the European economy that are proving more significant, with declining values in nine of the 10 markets that these European funds cover,' said Douglas Rowlands, head of multinational services at IPD.

Negative growth in France and Germany, which account for almost 50% of the funds' allocations, were the main drag on returns. In France, values of the underlying property assets fell by 1.0%, against a decline of 0.3% in Germany. Sweden was the strongest performing market, with values rising 1.5%, generating a total return of over 3% for the quarter.