Global

Could breaking capital growth into its components help tell a more detailed story of property portfolios’ performance?

Pan-European funds underperformed compared to U.S. funds in the years following the financial crisis and during the European Sovereign debt crisis, but that in more recent years, Pan-European fund returns have been out-performing U.S. funds.

Across most of these markets, there was a softening in total returns, as capital growth moderated.

Climate related weather events can increase operational costs, devaluate property, and in some extreme cases, lead to asset stranding.

While downturns may be hard to escape, diversification and income returns have in the past provided investors with some protection.

Variables such as age, location and property type can influence how much capex is required to operate an asset.

In 2001, office and retail accounted for 46 and 31 percent, respectively, of capital value in the MSCI Global Annual Property Index. However, now they account for less than two-thirds.

While retail had the lowest premium across the sectors in 2018, it was in line with its 20-year average, as were the office and residential sectors.

As interest rates have fallen, the discount rates on real estate cash flows have followed, helping to drive up asset values.

The highest total return was achieved by the industrial sector at 13.3 percent and the weakest total return was for retail at 2.9 percent.

The MSCI Global Annual Property Index found that commercial real estate achieved a total return of 7.4 percent in 2018.

Capital growth was positive in all the markets though in the U.K. it was just 0.6 percent.