UK - Pooled property funds outperformed both real estate equities and real estate investment trusts (REITs) in the past year, despite evidence of cooling in the UK real estate market.
According to data published last week by IPD, pooled real estate funds returned 13.6% in the past 12 months, compared with 9.2% returns on UK real estate equities. FTSE All-Share indexed equities returned 18.4%.
The HSBC and Association of Real Estate Investment Funds (AREF)-sponsored IPD UK Pooled Property Fund Indices showed pooled real estate funds returned 2% in the second quarter, down 0.5% from the beginning of the year. The figure is comparable with direct investment, which returned 2.1%. UK equities returned 4.5% over the same period.
Sub-sectoral variation shows, despite a cooling market, investors are finding yields in southeast office and niche. While balanced funds returned mid-level returns of 2.2—7.6%, compared with "outlier" sector-specialist funds.
Balanced funds include the whole market, across sub-sectors while specific funds invest within sectors of the market – "in retail or office or on a specific street in the City of London", said IPD head of fund services Cameron McVean.
"Funds invested in City offices have fared better than those invested in retail or some industrial."
A significant rise in interest rates could alter the forecast but McVean expects few changes over the next half-year.
"The market is stalling from where it was a year ago. I wouldn’t expect to see a jump of 3% from where we are now," he said.
Raymond Satumalay, former real estate specialist with Blue Sky, which managed the KLM pension funds, recently claimed European pension funds would be increasingly drawn to pooling property assets.
Now a fund manager at Bouwfonds, Satumalay told IPE Real Estate: "Managing resources will play a larger role than in the past and pension funds are already pooling assets to overcome it. The pooling trend will accelerate."