European real estate returns fell to 0.22% in the three months ended March 31, with the asset class hit by the coronavirus pandemic.
The European Association for Investors in Non-Listed Real Estate Vehicles said it was the worst quarterly performance since the fourth quarter of 2012.
Total real estate returns fell to 0.22% in the first quarter from 1.8% in the fourth quarter. Capital growth fell to -0.47% from 0.37% three months earlier and distributed income dropped to 0.68% from 1.43%, according to the association's quarterly index.
A number of strategies showed declines. Core fund performance fell to 0.28% from 1.71% the previous quarter, while value-added funds fell to -0.73% from 2.96%. U.K.-focused funds recorded the steepest decline to -2.46%, from -0.15% for the fourth quarter.
Other indexes also showed the evidence of a COVID-19 hit on real estate. The European ODCE Quarterly Fund index, which measures open-end core institutional funds that invest across Europe, multiple sectors and with low leverage, returned -0.14% in the first quarter, compared with 2.61% for the three months ended Dec. 31.
And the INREV Asset Level Quarterly index, which measures the performance of European real estate assets, recorded a drop in total returns to 0.55% in the first quarter from 2.24% in the fourth quarter. Capital growth fell 185 basis points to -0.4%, although income return remained stable at 0.96%, the data show.
In May, INREV conducted a COVID-19 sentiment survey and an impact on valuations survey. Both highlighted "a generally cautious approach to the overall outlook," said a news release from INREV. The uncertainty of the period was reflected in responses stating that portfolios were valued under the "material valuation uncertainty" or a similar clause, INREV said.
However, while most investors remain confident in the European real estate market, more respondents said they have changed their investment plans than those who have not.
"Collectively, these data point toward an environment of downside risk and we should anticipate lower expectations for real estate performance in Europe in the medium term," said Henri Vuong, director of research and market information, in the news release. "However, unlike the immediate aftermath of the global financial crisis, the market is not overleveraged and funds are sufficiently well capitalized to be able to restructure their debt if required."