Performance of European real estate assets saw a steady improvement in Q4 2020 with total returns reaching 1.92%. Capital growth improved to 1.00% on a quarterly basis compared to 0.27% in Q3, while income return dipped slightly to 0.91%, versus 0.94% registered in Q3. INREV Quarterly Fund Index tells a similarly positive story, with a total return of 1.70% in Q4 2020, increasing from the 0.96% in the previous quarter. Investors’ continued preference for core strategies was reflected in improving total returns for core funds which hit 1.80%, up from 1.08% in Q3. Value-added funds remained in negative territory, posting a total return of -0.06%. However, this is still an improvement on the previous quarter, up from -0.73%. The annual 2020 results highlight the diverging stories of core versus value added sentiment even more, with total returns of 2.71% and -5.29% respectively.
UK focused funds made a significant rebound with capital growth hitting positive territory in Q4 at both the fund level (0.60%) and the asset level (0.48%) for the very first time since Q2 2019 and Q4 2018, respectively. This moves back into positive territory, came largely as a result of strong performance in the industrial/logistics sector, which accounted for 26.7% of the INREV UK Quarterly Fund Index and 33% of the INREV UK Asset Level Index, as well as the residential and student housing sectors. However, the 2020 annual UK returns remained in negative territory in the case of both of the above-mentioned indices. Retail sector showed the sixth consecutive quarter of negative performance, with a further deterioration in Q4 to a total return of -1.79% versus -1.09% in Q3 2020, according to the INREV Quarterly Asset Level Index, and yet another dip in capital growth to -2.73%. However, there is large dispersion within the sector, with Q4 total returns of 3.36% for supermarket/superstores, while at the other end of the spectrum, shopping centers reported a negative performance of -3.61%. Creditable performances in sectors such as industrials/logistics, residential and most living sectors, and gradually, offices, and in core markets like Germany, Netherlands and France, reinforce the picture of an asset class returning to stability, underpinned by renewed investor appetite for new opportunities.