UK unlisted property returns slow to 0.2% in Q2

Further valuation falls in the UK direct property market in Q2 impacted on performance in the unlisted sector, slowing overall returns to 0.2%, and to 0.0% for the 29 specialist funds measured.

Balanced funds, with their more even spread across the sectors and smaller allocations to the more challenged parts of the retail market, recorded stronger returns at 0.3%, according to the AREF/IPD UK Quarterly Property Fund Index.

'Whilst short-run returns in the sample have slowed in line with the underlying direct property market, it is by no means a collapse, and considering the wider economic uncertainty created by the Euro, and the stifling austerity cuts in the UK, the majority of UK funds are still delivering positive longer-term returns,' said John Cartwright, chief executive at AREF.

Malcolm Hunt, director of UK & Ireland Client Services at IPD, added: 'The continued fall away of the retail warehouse funds is one of the most notable characteristics of the performance results this quarter - all of which posted negative returns. Indeed, of the 12 specialist funds that delivered negative returns in Q2, eight were retail specialists.'

Specialist funds are more highly leveraged than their balanced counterparts, but for the time being the impact of gearing remains muted. Nevertheless, for the second quarter gearing as a percentage of gross asset value crept up to 32.3%.

Balanced funds have a negligible level of gearing, but their higher cash holdings continued to act as a negative drag in the current low interest rate environment.