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European non-listed real estate performance remains resilient in Q1 2022 

High capital growth drives strong performance for fourth consecutive quarter  

Geopolitical and macro-economic uncertainty shift investor sentiment 

15 June 2022, Amsterdam – European non-listed real estate delivered its fourth consecutive quarter of strong positive performance in Q1 2022. The INREV Pan-European Quarterly Asset Level Index posted total returns of 3.47%, albeit slightly lower than the record high of 4.86% achieved in the final quarter of 2021.  

Returns were driven by strong capital growth of 2.63%, reinforcing continued investor demand for non-listed real estate as an asset class. This is the second-highest capital growth since the inception of the Index in 2014, accounting for three-quarters of the Q1 2022 total return. It also pushed up the 12-month rolling return to 13.15% in Q1 2022, from 12.89% in Q4 2021.  

Similarly, the INREV Quarterly Fund Index delivered quarterly returns of 3.40%, and capital growth of 2.88%, marking the seventh consecutive quarter of positive performance overall, with the last four being predominantly capital growth driven. 

Continued momentum across Europe 

The UK posted a total return of 4.56%, bringing the 12-month rolling quarterly average to 4.60% – the highest of all European markets and substantially above the three-year quarterly average of 1.59%.  

For Germany, asset level total return slowed substantially to 2.84% in Q1 2022, compared to 6.29% in Q4 2021. This reflects the steepest decline in the performance of all geographies. On top of the high seasonal effects in German valuations, the correction is likely to have been triggered by changing investor sentiment due to the war in Ukraine, soaring energy prices and their subsequent impacts on Germany's economic outlook. 

With the exception of the Nordic region, which saw its total return increase from 2.52% in Q4 2021 to 3.91% in Q4 2022, all other European markets recorded a dip in performance over the quarter.  

Strong sector performance expected to slow 

The pan-European industrial/logistics sector continued to build on its robust performance with an asset level total return of 6.20%, marking its second-best performance since 2014, and close to its record high of 7.61% at the end of 2021. Despite positive performance in Q1 2022, overall net sentiment towards the sector turned negative. According to the most recent edition of the INREV Sentiment Survey, 20% of respondents intend to decrease allocations to industrial/logistics, and none intend to increase their allocations. 

Sentiment towards the residential sector was neutral for the first time since the start of the Survey, despite solid asset level returns of 3.52%. This might be the result of increased regulation within the sector in some European markets.  

The gradual improvement in sentiment and performance for the office sector appears to have paused, with total returns for this sector levelling off to 1.46%, compared to 3.50% in Q4 2021. Retail, however, reported an asset level total return of 2.27% in Q1 2022, only 10 bps lower than in Q4 2021, and no investors or investment managers plan to decrease allocations to this sector. 

New phase in investment  

The INREV Sentiment Survey also points to a new phase in the investment market, most likely triggered by the geopolitical and economic consequences of the Russian invasion of Ukraine, alongside quantitative tightening by central banks in response to elevated levels of inflation.  

While the application of material uncertainty clauses by investment managers dropped to only 5% – the lowest since the Survey began – 78% of survey respondents indicated they’d increased their assessment of investment risk, and none is expecting a decrease in risk.   

Perhaps unsurprisingly, sentiment towards Core CEE and Fringe CEE has turned negative, with 22% of respondents intending to decrease allocations to these markets, in light of the war in Ukraine. Similarly, sentiment toward Germany has further deteriorated with 11% of respondents intending to decrease allocations, representing a rapid downturn from December 2021. However, of all investors and investment managers in the Survey, 22% intend to increase allocations to the UK. 

Data from MSCI Real Assets shows a substantial 52% slide in transaction volumes for the period, down from €150.8 billion in Q4 2021 to €71.8 billion in the first quarter of 2022, with real estate transactions falling across all European markets as the first quarter of the year is usually weaker. However, direct transaction volumes in Q1 2022 were notably higher compared to Q1 2021.  

Iryna Pylypchuk, INREV Director of Research and Market Information, added: ‘The European Central Bank’s decision to raise interest rates in July starts a new policy era with the aim of managing the high inflationary environment that the Eurozone is facing as a result of the war in Ukraine. No matter how gradual, the shift away from negative interest policy and the imminent end of asset purchase programs will impact all asset classes, and European non-listed real estate is no exception. The higher interest rates will most certainly lead to weaker performance expectations, and the phase of exceptional capital growth driving the strong performance over the last few quarters (including Q1 2022) is now likely to reach a somewhat abrupt end. Higher assessment of risk, slower capital deployment and allocation decision making will be the near-term features, prompting investors and investment managers to dive deeper into underlying fundamentals to unpick opportunities. This may shift the attention to the emerging sectors driven by demographics, technology and long-term structural ‘’cater to consumer” shifts even more. That said, the long-term value and diversification benefits that European non-listed real estate offers should support the proposition of the asset class, with the added benefit of real estate being inflation sensitive – but here too the bottom-up approach to asset selection and expert asset management is required.’ 

– Ends – 

For further information, please contact:  

Johlyn da Prato, johlyn.daprato@inrev.org  | +31 (0) 621397456 

Justin St Clair-Charles, inrevteam@firstlightgroup.io | +44 (0) 7769 644 059 

Josie Workman, inrevteam@firstlightgroup.io | +44 (0) 7460 325 392 

Notes to Editors 

About INREV 
INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for institutional investors and other participants in the growing non-listed real estate vehicles sector. The association represents and reflects an industry with a total value of €2.8 trillion and INREV members deliver €385 billion of stimulus to the real economy of Europe.  

INREV has 49 members which include 120 of the largest institutional investors as well as 40 of the 50 largest real estate fund managers, plus banks and advisors across Europe and elsewhere.  

The non-profit association is focused on increasing the transparency and accessibility of non-listed vehicles, promoting professionalism and best practice, and sharing knowledge. It is based in Amsterdam, the Netherlands.