MSCI: Big Year for Global Property Funds

The latest IPD Global Quarterly Property Fund Index measured an increase to 13.5 percent in fourth quarter 2015, the highest since 2011.
Colm Lauder, MSCI
Colm Lauder, MSCI

New York—Global property funds had a good run in 2015, the likes of which haven’t been seen in four years. MSCI Inc. recently released the IPD Global Quarterly Property Fund Index, and the results were more than optimistic: returns rose to 13.5 percent in the fourth quarter of 2015, a figure reflecting the highest return since 2011.

It’s quite a sampling. The Index examines the performance of 93 funds—spanning Asia Pacific, Continental Europe, North America, and the U.K.—accounting for a total net asset value of $269 billion and a total capital value exceeding $326 billion.

Last year’s 13.5 percent total return at NAV, up 1.5 percent from 2014, speaks well of the markets, but it was North America that bolstered the outcome with a 14.2 percent return. It’s a figure that can be credited in no small part to strong capital value growth in the U.S., according to MSCI.

“Overall, we have seen a rather unique period of stability in global returns, despite some moderating performance in markets like the U.K. and USA,” Colm Lauder, vice president, real estate, MSCI, told Commercial Property Executive. “Additionally, stronger cities for investment returns, like London, New York etc., have stabilized in 2015 as the rate of rental and capital value growth decelerates. This has meant that on a global level returns have now averaged 11.3% over the last five years – a sign of remarkable stability since the recovery began in late 2009, but also that investment real estate has outperformed both equities and bonds over the same period, especially so in 2015.”

The 12-month total return at NAV achieved by bonds and equities was 1.6 percent and 2.6 percent, respectively, per the Index. Property equities yielded returns of 3.7 percent. MSCI ascribes the wide gap between the property funds’ performance and that of other asset classes to economic uncertainty in many corners of the globe, as well as monetary policies that have diminished returns.

The Index also takes into account the performance of the funds’ underling assets, and here, the annualized total return was 12.5 percent in the final quarter of 2015, with Europe leading the way with a 12.9 percent return.

It’s anyone’s guess if the upswing in property funds returns will continue. MSCI won’t make predictions or offer any forecasts. However, the research-based indexes and analytics firm concedes that—based on past occurrences—certain factors could result in the deceleration of growth in returns. Lauder noted, “Historically a slow-down in oil prices has impacted the performance of commercial real estate, and additionally we are entering a period of major political uncertainty on both sides of the Atlantic in 2016 with the U.S. Presidential Elections, U.K. European Union Referendum and continued challenges on European cohesion, all of which are likely to dampen investor appetites.”