Conditions harden but investors and managers adjust to new reality
23 September 2020, Amsterdam – The recent INREV Quarterly Asset Level Index reveals a dip in performance for the second consecutive quarter, tipping total returns into negative territory for the first time – down from 0.50% in Q1 to -0.33% in Q2. This represents the lowest performance tracked by the index since its inception in Q1 2014 and reflects continuing downward pressure from the COVID-19 pandemic on the European non-listed real estate industry.
This weak performance was driven by negative capital growth, which accelerated from a -0.45% decline in Q1 to a fall of -1.21% in Q2 2020. Income return also slid to 0.89%, down from 0.95% in Q1.
The INREV Quarterly Fund Index reflected a similar performance, with total returns turning negative for the first time since Q4 2012, sliding from 0.05% in Q1 2020 to -0.60% in Q2 2020.
Sectoral variances
Residential was the best performing sector, despite a drop in fund returns from 2.79% in Q1 to 1.19% in Q2, according to the INREV Quarterly Fund Index. Retail, on the other hand, continued to slide with a fifth consecutive quarter of negative performance hitting its lowest trough since Q2 2009, with returns of -3.99% in the last quarter. The office sector moderated at 0.38% and industrial / logistics slowed to 0.62%.
Rent and liquidity
According to INREV’s Valuations Questionnaire, rent collection remained a challenge for both open and closed end funds during Q2 2020. Some 21.5% of respondents indicated that they’d received less than half of their rent on time, an increase from 14.1% in Q1 2020. Similarly, a declining number of respondents – 66.0% in Q2 versus 78.1% in Q1 – said they’d received between 75% and 100% of rent due for the period.
More respondents expect an impact on net operating income in the future – 78.1% in Q2 2020 compared with 66.7% the previous quarter – be it an increase in rent frees, rent reduction, rent deferrals, or ‘other’.
The questionnaire also revealed an impact on the liquidity of open end funds, with 24% of respondents indicating that their fund had suspended unit subscriptions, redemptions or the issuance of a dealing NAV, up from 8.5% of respondents in June 2020. Of the suspended funds, 82.6% indicated that this was decided by an internal committee or board and only 17.4% had to close to redemptions due to a regulatory requirement.
Adjusting to the new reality
INREV’s second COVID-19 Sentiment Survey revealed how investors and managers are adjusting to the new reality, with 75% of respondents indicating a willingness to provide a degree of rent relief or abatement to their tenants. Similarly, only 33% said they were planning to revise their investment plans in light of the pandemic, as opposed to 55% when the first survey was conducted in May.
Lonneke Löwik, INREV CEO, said: ‘The Q2 results reveal the extent of the negative impacts of COVID-19 on the European non-listed real estate market. The effect on returns and other aspects of performance were broadly anticipated, however between January and August 2020 the volume of deals in excess of €250 million rose year-on-year. What’s particularly heartening is the collective sense of purpose in addressing the challenges. There is clear evidence of the ‘we’re in this together’ sentiment of investors / fund managers and their respective tenants.’
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For further information, please contact:
Johlyn da Prato, johlyn.daprato@inrev.org | +31 (0) 621397456
Justin St Clair-Charles, inrevteam@firstlightpr.com | +44 (0) 7769 644 059
Josie Workman, inrevteam@firstlightpr.com | +44 (0) 7460 325 392
Notes to Editors
About INREV Indices
INREV Quarterly Funds Index
The INREV Quarterly Funds Index is a net asset value and time-weighted return calculated using a Modified Dietz methodology. This quarter’s release includes 332 institutional funds with a total gross asset value of €243.2 billion as at end of Q2 2020.
INREV Quarterly Asset Level Index
The INREV Quarterly Asset Level Index covers the performance of European real estate assets. This latest release includes 8,275 assets from 29 companies and represents an aggregate market value of €166.3 billion as at end of Q2 2020.
About INREV
INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for institutional investors and other participants in the growing non-listed real estate vehicles sector. The association represents and reflects an industry with a total value of €2.8 trillion and INREV members deliver €385 billion of stimulus to the real economy of Europe.
INREV has 461 members which include 86 of the largest institutional investors as well as 40 of the 50 largest real estate fund managers, plus banks and advisors across Europe and elsewhere.
The non-profit association is focused on increasing the transparency and accessibility of non-listed vehicles, promoting professionalism and best practice, and sharing knowledge. It is based in Amsterdam, the Netherlands.