Historically, investors may have run a mile when investing in property was suggested. And with factors such as the mortgage collapse in the UK, the sub-prime crisis in the US and recent talk of a property bubble, you would not blame them.
It has not been one of the most loved sectors, but things may be on the up. Commercial property is slowly increasing in investor interest and confidence.
According to the latest figures from the Investment Management Association (IMA), funds in the Property sector saw a continued increase in net retail sales for the eighth consecutive month, reaching £177m in September 2013, the highest level since June 2010, well above its monthly average of £77m for the previous 12 months. It was the third best-selling sector of the month.
Philip Nell, manager of the Aviva Investors Property Trust, attributes the increase of inflows into property funds to a relative pricing basis, coupled with an increased risk appetite towards the end of last year and the beginning of this year. “Investors are returning to property having seen other asset classes grow strongly over the past five years; whereas commercial property values have been pretty flat, certainly in the past three years.”
He says the recent turnaround in the UK real estate sector is happening quickly as the growing confidence in the market encourages investors to increase their exposure to the asset class.
The Investment Property Database (IPD) showed in September that the offices sector has been outperforming, led by central London, and there is an improvement in the industrial and retail sectors.
The IPD monthly index showed a total return of 2.9 per cent in the third quarter of this year, the strongest quarterly return in more than three years.
Performing well
Mr Nell says, “In terms of a recovery story, other asset classes hadn’t recovered at the beginning of this year and I think that’s why the attraction to property was there.”
Table 1 shows the top 10 performing unit trusts for the IMA Property sector over the past five years to 1 November.
The top performing unit trust is the Henderson Horizon Asia Pacific Property Equities fund, which returned £2,309 on an initial £1,000 investment with net income reinvested over five years, an annualised return of 18.2 per cent. Managed by Tim Gibson, the US$436m fund invests at least 75 per cent of its assets in quoted equities or real estate investment trusts (Reits), rather than in bricks and mortar. Its biggest country allocation as of end of September 2013, is Japan at 49 per cent of the fund.
