European real estate registered record low quarterly investment returns in the final three of last year as property valuations fell to reflect higher interest rates, according to MSCI‘s Europe Quarterly Property Index.
Total returns, which combine changes in the valuation of properties plus the income they generated, were a negative -6.7% in Q4 from the previous quarter. This exceeded the previous record, a -6.4% negative quarterly return in Q4 2008, during the Global Financial Crisis.
”Capital growth was the major drag on returns, as property valuations were lowered because of the shift in interest-rate policy to combat inflation. This shift has made low-yielding assets appear less viable when compared with the cost of capital and returns from other asset classes,” says Tom Leahy, MSCI’s Head of EMEA Real Assets Research.
”Despite a tumultuous year for many European economies, however, the results showed the occupier market remained in relatively good health. Market-value rental growth accelerated in December when compared with September, and vacancy rates remained well below their long-run average,” adds Leahy.
MSCI’s Europe Quarterly Property Index measures the investment performance of 13,443 properties with a total value of €293.8 billion.
- The UK was Europe’s worst performing country in Q4. The -11.7% QoQ return was the second worst performance on record
- Returns in Q4 in France (-6.5% QoQ) and Germany (-6.0% QoQ) were also the lowest on record
- No country or regional real estate market avoided negative investment returns
- The negative returns were less pronounced in Belgium, Luxembourg and the CEE region
- While returns were affected by the fall in valuations, rental income remained relatively healthy