Research - MAY 8, 2017

Netherlands outperformance boosts total real estate returns in Europe

by Released 5/8/17

The Netherlands posted the strongest nonlisted real estate performance on record with total returns of 14 percent, according to the ANREV Annual Index 2017.

Despite this boost, annual returns across Europe dropped to 6.0 percent in 2016 from a nine-year high of 9.7 percent in the previous year.

Much of the fall was driven by weaker performance during the second quarter 2016 and third quarter 2016, which stemmed from much lower valuations in the United Kingdom during the turmoil of a Brexit referendum.

U.K. nonlisted funds plummeted to 2.2 percent, their lowest return since 2012 (0.6 percent) and far from 2015’s peak of 12.0 percent. In contrast, France and Germany posted robust results at 10.3 percent and 7.9 percent, respectively. This lull in activity is emphasized by the performance in Continental Europe, which posted returns of 8 percent, beating the United Kingdom for the first time since 2008.

The United Kingdom’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 U.K. market is stabilizing after reaching its post-crisis peak of 16.7 percent in 2014,” said Henri Vuong, INREV’s director of research and market information.

By sector, residential was the best performing in 2016, reaching a 15.8 percent return, 6.1 percent ahead of 2015. In the Netherlands, for example, residential was the most significant driver of performance, accounting for 64.8 percent of NAV allocation.

Contrastingly, the industrial/logistics sector, which has been a highly sought-after investment opportunity valued for its security, delivered 7.4 percent returns in 2016. However, industrial/logistics still performed better than sectors such as retail at 5.2 percent and office at just 3.1 percent, signaling a likely continued investor appetite for this sector.

Vuong added, “Europe is and will continue to deliver a strong and stable performance. The U.K.’s fourth quarter recovery after Brexit signals that investor interest in Europe’s nonlisted 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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