Threadneedle’s property chief Don Jordison has predicted bumper gains for his asset class this year, in spite of a rise of more than 10 per cent in 2013.
Mr Jordison, managing director of Threadneedle Property Investments, said he had “never seen so many tailwinds” for commercial property in his 30-year career.
Speaking at a Threadneedle briefing last week, the manager of the £555.7m Threadneedle UK Property fund said: “Last year there was a renewed appetite for risk. I can guarantee the market will return more than 2013 this year.”
In 2013, the IPD All Property index gained 10.9 per cent, its best annual return since its post-crisis bounce in 2010. So far this year, the index has risen a further 2.3 per cent.
Mr Jordison said that a combination of low supply and a high amount of money “that needs spending” was leading to a positive outlook for the short term, but he said that the UK property market was likely to return to lower capital growth in the longer term as the sector was primarily an income play.
“The net yield on property is about 6.1 per cent, which is pretty good value against the 2.75 per cent yield on gilts,” he said.
Ignis Asset Management’s George Shaw, manager of the £1.2bn Ignis UK Property fund, agreed with Mr Jordison’s assessment and tipped offices to deliver the best performance out of the subsectors of the property market.
Ignis has upped its forecast for property returns in 2014 to 15.5 per cent, significantly higher than both its previous estimate and that of the International Property Forum.
“Demand for Central London assets, both retail and offices, will remain strong in 2014,” Mr Shaw said. “The acceleration of the leasing market with the prospect of rental growth will continue to support investment performance in this market.”
The manager added that investors were likely to move outside of London and the south east, which have taken the majority of demand.
Meanwhile, Mr Jordison sought to highlight the impact of high transaction costs on direct property portfolios.
He cited Threadneedle research that compared the performance of a “buy and hold portfolio” against one that had invested in the top-performing sectors of each year, with the cost of transferring into those sectors included.
The research showed that transaction costs – which are typically much higher for direct property than for other asset classes – eroded any performance benefits.
“We haven’t sold anything from the Oeic since it was launched,” he said. “All holdings were bought in a recession environment.”
The Threadneedle UK Property fund – part of the company’s £6bn property business – is down 2.9 per cent since its launch in February 2007, but has lost significantly less than many of its peers. In the same period, the average fund in the IMA Property sector lost 14.8 per cent, although this also includes property-related equity funds.
