Unlisted property funds outperformed equities and property REITs in 2011, but lagged behind returns from direct commercial property.
According to the AREF/IPD UK index, pooled property funds delivered 1.2% in the fourth quarter of 2011, as returns continued to slow. This contributed to an annual return of 7.1%.
Direct property, measured by the IPD UK Monthly Index, returned 8.1% (see below), equities returned -3.5% and property REITs -8.8%.
Pooled fund capital returns remained positive in the fourth quarter at 0.4%, in contrast to the underlying direct property market, which trended into negative territory.
An increasing proportion of the 56 contributing funds experienced capital depreciation, but average levels of gearing still fell for the 11th consecutive quarter, down to 3% for balanced funds and 32% for specialist funds.
Malcolm Hunt, director of UK and Ireland client services at IPD, warned that further declines in value, which are becoming more widespread, may prompt ratios to creep up again.
The index also revealed that specialist funds outperformed their balanced counterparts in the more optimistic first half of the year, owing to their exposure to prime, and to strong growth areas in the market, especially shopping centres and retail warehouses.
However, the worsening economic conditions after Q2 led to a reversal in fortunes.
bridget.oconnell@estatesgazette.com
