For the first time since the onset of global financial crisis, real estate returns across Continental Europe surpassed those in the UK, according to new figures from INREV, the European Association of Non-listed Real Estate Vehicles.
Real estate returns across the continent, excluding the UK, came in at 8 percent in 2016, according to INREV’s 2017 Annual Index. By contrast, returns in ?the UK plummeted to 2.2 percent, the lowest level since 2012's 0.6 percent return, and significantly below 2015’s peak of 12 percent.
When factoring in the UK’s data, European returns dropped to 6 percent in 2016 from a nine-year high of 9.7 percent in the previous year. INREV attributed the decline to weaker performance in Q2 and Q3 across the continent, which stemmed from much lower valuations in the UK following the fallout from last summer’s referendum.
By contrast, the Netherlands posted the strongest non-listed real estate performance on record last year with total returns of 14 percent, while France and Germany recorded robust results at 10.3 percent and 7.9 percent, respectively.
“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. “While deployment of capital remains a challenge, there is a possibility that the UK market is stabilizing after reaching its post-crisis peak of 16.7 percent, in 2014.”
INREV’s data also revealed that residential was the best performing sector in 2016, generating an overall 15.8 percent return, 6.1 percent ahead of 2015’s figure. In the Netherlands, said INREV, residential was the most significant driver of performance, accounting for 64.8 percent of NAV allocation.
In other sectors, logistics delivered returns of 7.4 percent last year while retail and office came in at 5.2 percent and 3.1 percent, respectively.
“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,” added Vuong.