The INREV Annual Index for 2017 reveals that the Netherlands posted the strongest non-listed real estate performance on record with total returns of 14 per cent. Despite this boost, annual returns across Europe dropped to 6.0 per cent in 2016 from a nine-year high of 9.7 per cent in the previous year, the survey finds, ascribing much of the fall to weaker performance in Q2 and Q3 which stemmed from much lower valuations in the UK during the turmoil of a Brexit referendum.
The UK plummeted to 2.2 per cent, its lowest return since 2012 (0.6 per cent) and far from 2015’s peak of 12.0 per cent. In contrast, France and Germany posted robust results at 10.3 per cent and 7.9 per cent, respectively. This lull in activity is emphasised by the performance in Continental Europe, which posted returns of 8 per cent beating the UK for the first time since 2008.
The UK’s downturn in the middle of the year saw countries such as the Netherlands and France buck the general downward trend in Europe.
‘The uncertainty surrounding Brexit caused widespread caution, but this was probably just an extension of the underlying characteristics of the largest and most volatile market in Europe. While deployment of capital remains a challenge, there is a possibility that the UK market is stabilising after reaching its post-crisis peak of 16.7 per cent, in 2014,’ says Henri Vuong, (pictured) INREV’s Director of Research and Market Information.
By sector, residential was the best performing in 2016, reaching a 15.8 per cent return, 6.1 per cent ahead of 2015. In the Netherlands, for example, residential was the most significant driver of performance accounting for 64.8 per cent of NAV allocation.
Contrastingly, the industrial/logistics sector, which has been a highly sought-after investment opportunity valued for its security, delivered 7.4 per cent returns in 2016 – a perhaps surprising result. However, industrial/logistics still performed better than sectors such as retail at 5.2 per cent and office at just 3.1 per cent, signalling likely continued investor appetite for this sector.
Henri Vuong, adds: ‘Europe is and will continue to deliver a strong and stable performance. The UK’s Q4 recovery after Brexit signals that investor interest in Europe’s non-listed real estate industry will remain strong in 2017. Investors are still increasing their allocations to real estate and this could take several years to reach target levels for some, which points towards a continuing sense of confidence in the market.’
