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Returns for European non-listed real estate rebound into positive territory in Q3

Investors experience pockets of outperformance as the impact of COVID-19 eases

16 December 2020, Amsterdam – Results from the latest INREV Quarterly Asset Level Index reveal an uptick in performance for Q3 2020, with total returns moving back into positive territory following the negative performance posted in the previous quarter. 
Recording a total return of 1.20%, these results reflect the easing pressure from the COVID-19 pandemic on the European non-listed real estate industry.
The improved performance was driven largely by positive capital growth, which recorded a quarter-on-quarter increase of 146 bps to 0.26%, with the income return increasing to 0.94%, a slight improvement on the 0.88% registered in Q2.  
The INREV Quarterly Fund Index reflected a similar performance, with an improved quarterly return of 0.89%, increasing from -0.67% recorded in Q2 2020. Although far from pre-pandemic levels, uplifts were recorded across many strategies. Core funds drove the performance, posting a total return of 0.97%, up from -0.56% in Q2. The performance of value added funds also improved but remained in negative territory with a total return of -0.47%.

Improved regional performance 
Main European markets delivered a healthy performance in Q3 2020, according to the Pan-European INREV Asset Level Index. Germany, France and the Netherlands all reported quarterly total returns of between 1.67% and 1.77%, bringing their 12-month rolling total average returns to a healthy 9.37%, 7.35%, and 5.78% respectively.

Despite delivering a total return of 0.34% in Q3 2020, the UK continued to lag behind other countries, with capital growth remaining negative. The improvement from -1.94% in Q2, was largely driven by a strong performance in the industrial and logistics sector, and less negative results in retail with both sectors accounting for over 50% of the UK index.

The geographical differences in the performance of non-listed real estate seem to reflect, at least to some extent, the liquidity of the direct markets. Transaction volumes over the first three quarters of 2020 have decreased across the board, according to Real Capital Analytics. However, for Germany, the decline is relatively limited at -4.3% compared to the same period in 2019 versus the -17.9% decline for Europe overall.

Sectorial variances
According to the Pan-European INREV Quarterly Asset Level Index, performance improved across all main sectors in Q3. Industrial and logistics was the best performing segment, delivering a total return of 3.08%, compared to just 0.11% recorded in Q2 2020. The residential and office sectors reported Q3 total returns of 1.82% and 1.07%, respectively.

After five consecutive quarters of negative performance, the retail sector delivered a total return of 
-1.10% in Q3, up from -3.04% in the previous quarter. 

Stronger recovery across rent and redemptions
According to INREV’s Valuations Questionnaire, rent collection improved for both open and closed end funds during the previous quarter. Some 88% of respondents indicated that they’d received between 75% and 100% of their rent on time, an increase from 66% in Q2 2020. Similarly, a greater number of respondents – 77% in Q3 compared to just 55% in Q2 – said they’d received between 75% and 100% of rent due for the period.

The questionnaire also revealed a strong, positive impact across open end funds in Q3, with only 6% of respondents indicating that their funds remain suspended to unit subscriptions, redemptions or the issuance of a dealing NAV. This is notably down compared with 23% of respondents in Q2. 

Iryna Pylypchuk, INREV’s Director of Research and Market Information said: ‘The latest results paint a generally improved picture of returning investor confidence, with pockets of outperformance across markets and sectors. Germany led the performance as a target single country strategy, while industrial and logistics and residential segments performed well across all markets, including the UK which remains the obvious weak link in terms of overall performance. A significant decline in the use of material uncertainty clauses is an early indicator that we should see an uptick in investment deal volumes and liquidity both in Q4 2020 and into 2021.
‘However, at an individual market level, the UK is the obvious weak link. With diminishing investor confidence across many market segments, currency challenges and the looming pressures of Brexit, its prospects for 2021 look decidedly less encouraging. That said, even in the rest of Europe, given the on-going restrictions in many European countries, the upturn will be most visible in markets that have a large established local institutional investor base and with activity revolving around existing relationships.’     
– Ends –

For further information, please contact: 
Johlyn da Prato, johlyn.daprato@inrev.org  | +31 (0) 621397456
Justin St Clair-Charles, inrevteam@firstlightpr.com | +44 (0) 7769 644 059
Josie Workman, inrevteam@firstlightpr.com | +44 (0) 7460 325 392

Notes to Editors
About INREV Indices

INREV Quarterly Fund Index 
The INREV Quarterly Fund Index is a net asset value and time-weighted return calculated using a Modified Dietz methodology. This quarter’s release includes 319 funds and represents a total gross asset value(GAV) of €247.4 billion as at the end of Q3 2020.
INREV Quarterly Asset Level Index 
The INREV Quarterly Asset Level Index covers the performance of European real estate assets.  This latest release includes 6,306 assets from 31 companies and represents an aggregate market value of €173.5 billion as at end of Q3 2020.  
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 463 members which include 88 of the largest institutional investors as well as 69 of the 100 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.