Annualised returns of unlisted core wholesale property funds have dipped 45 basis points from around 9.2 per cent in March to 8.8 per cent in June, according to the latest Mercer/IPD Australian Pooled Property Fund Index – Core Wholesale.
The index represents a basket of 17 pooled property funds for nine managers, with a gross asset value of $50 billion, according to IPD.
The decline in returns (net of gearing and management fees) was due to a decline in capital returns as income remained steady over the quarter, IPD stated. Returns over the previous year were a full percentage higher at 9.8 per cent, after peaking at around 10 per cent in mid 2011.
Managing Director of IPD in Australia and New Zealand Dr Anthony De Francesco said the results show the market is softening.
"The moderation in investment returns reflects weakness in demand-side factors for underlying space market fundamentals," he said.
"Given the ongoing sluggish nature of demand to persist over the next 12 months, we expect investment returns for core property to continue softening. This suggests that over the short-term greater opportunities may lie within the non-core risk-reward investment spectrum," De Francesco said.
Over the year to June 2012, diversified funds again outperformed sector specific funds, posting an annual total return of 9.1 per cent.
This was compared to an 8.7 per cent return for retail funds, 8.5 per cent for office funds and 8.0 per cent for industrial funds.
