Unlisted property funds in the UK returned 0.4% in Q3, a slight increase over the previous quarter as underlying direct property values fell slower according to the AREF/IPD UK Pooled Property Fund Index. Balanced funds are still performing better than their specialist counterparts, but the gap was much less in Q3 than in previous quarters, with specialist funds returning 0.3% compared to balanced funds 0.4%.
Looking at 12 month returns we find that unlisted funds come in below direct commercial property investments, but that REITs come in well above equities and gilts. In the last 12 months unlisted funds have returned 2.5% on average, compared to 3.5% returned by direct commercial property investments. Meanwhile, with the confidence crisis no longer impacting the 12 month data REITs have returned 19.5% over the last 12 months. This is compared to returns of 17.2% and 8.8% in Gilt and equities investments respectively. The data for REITs, equities and gilts all comes from the FTSE (the FTSE All-Share REITs Index, the FTSE All-Share Index and the FTSE 5-15 yr Gilt Index), making for a fair comparison.
The gap between balanced and specialist funds widens over the year, with balanced funds returning more at 2.8% compared to the 2% returned by specialist funds during the period.
Third quarter returns may have only increased by 20 basis points, but it is also significant that 64% of the 53 funds measured by the AREF/IPD UK Pooled Property Fund Index had positive returns, which is a significant improvement on previous quarters.
Phil Tily, IPD UK and Ireland managing director, said: "Overall conditions are improving in the unlisted sector, and although performance levels remain low, it’s important to remember that returns have remained in positive territory at all points during the latest downturn in the market.
"Shopping centre funds overall have seen a marked improvement in returns in the last three months, after a difficult year, which should bring some cheer to the sector.
"Considering the wider economic uncertainty created by the Euro and the stifling austerity cuts in the UK, the majority of UK funds are still delivering robust performance levels with positive rates of return – with a handful even reaching double digits over the last 12 months.
- Friday 19 October 2012