Asia-Pacific real estate funds outperform Europe and US

Non-listed real estate funds in Asia-Pacific returned an average of 10.6% in 2016, according to the latest annual ANREV index.

Amélie Delaunay, director of research and professional standards at the Association of Non-listed Real Estate Vehicles (ANREV), said the region outperformed both the US and Europe.

According to the Global Real Estate Fund Index (GREFI) – compiled by ANREV and its European and US counterparts INREV and NCREIF – the US market produced a return of 8.49% while Europe came in just above 6%.

Asia-Pacific’s return was the second best since 2007, but lower than the 12.1% achieved in 2015.

“These returns shore up Asia-Pacific’s position within a diversified investor real estate portfolio,” said Delaunay, adding that Asia-Pacific was the only region in 2016 to see an increase in fundraising activity. 

ANREV said returns from core funds slipped from 15.7% in 2015 to 13.1%, with performance primarily driven by capital growth of 8.4%.

The lower overall return reflected a slowing market in Australia, which represents just over 60% of the ANREV index. Capital growth in Australia dropped from 12.1% in 2015 to 8.4% last year.

Australian funds were the best performers within the single country funds category, returning 13.5%. But the return was lower than the previous year’s 17%.

The total gross asset value of Australian funds continued to increase in 2016, up to US$55bn (€50bn) from US$48.4bn in 2015.

China single country funds returned 0% in 2016 after negative returns the previous year. Returns from Japanese funds fell from 21.5% in 2015 to 13%.

The sharp fall in Japan was due to the fact that there were only five Japanese funds in the index, as several funds went into liquidation.

Asia-Pacific value-added funds lifted returns from 3.5% in 2015 to 10.1%. Opportunity funds declined from 5.5% in 2015 to 0.4% in 2016.

In Europe, annual returns dropped to 6% in 2016 from a nine-year high of 9.7% in the previous year, according to the INREV annual index.

The Netherlands posted the strongest real estate performance on record with total returns of 14%.

INREV said much of the fall was driven by weaker performance in the second and third quarters of 2016 and lower valuations in the UK following the country’s EU referendum.

The UK plummeted to 2.2%, its lowest return since 2012 (0.6%) and far from 2015’s peak of 12%.

In contrast, France and Germany posted robust results at 10.3% and 7.9%.

INREV said the lull in activity was emphasised by the performance in continental Europe, which posted returns of 8% and beat the UK for the first time since 2008.

“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,” said Henri Vuong, INREV’s director of research and market information.

“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%, in 2014.”

Residential was Europe’s best performing sector in 2016, reaching a 15.8% return, 6.1% ahead of 2015. In the Netherlands, residential was the most significant driver of performance accounting for 64.8% of net-asset-value allocation.

INREV said that the industrial/logistics sector delivered 7.4% returns in 2016, performing better than retail at 5.2% and office at just 3.1%.

“Europe is and will continue to deliver a strong and stable performance,” Vuong said.

“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.”

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