Figures from the IMA show it was the third best selling asset class in April, while the average return for the IMA Property sector is 8.26 per cent for the 12 months to June 12 2014.
Commercial property across the board has seen steady returns, with the IPD UK Monthly property index showing a 12 month return of 14.9 per cent to April 30 across all sectors, with the office sector posting the best return of 20.2 per cent.
And it looks like investor confidence in the sector remains high, with Aviva Investors raising its forecast for the asset class. It revealed earlier this month that it expected the annual average total return for UK commercial property for 2014-2018 will be 8.9 per cent, up from the 6.5 per cent forecast earlier in the year.
Chris Urwin, global research manager, real estate at Aviva Investors, says the increased forecast was a result of an improving near term outlook.
He adds: “Real estate still remains attractively priced relative to other income-producing assets and we expect capital growth to remain strong in the near term. Under our base case economic scenario, the prospects for returns in 2015 also look strong.
“Thereafter we continue to expect a slowdown as a result of rising government bond yields. We expect the biggest impact to be felt on prime markets, such as central London, which have historically been correlated with gilt yields. Nonetheless, we do not expect a dramatic impact on prime yields as the reasons behind the expected higher interest rate rises are positive. This means that occupier demand is likely to offset some of the negative effects of rising yields on pricing by real, or anticipated, future rental growth.”
Central London remains the prime location, not only for UK investors, but also international investors who often compete for the high quality so-called ‘trophy’ assets such as landmark office buildings.
Therefore Andrew Allen, head of global property research and strategy at Aberdeen Asset Management, suggests investors should not “fear the second tier” in the property market.
“The biggest market is London so it is very competitive and becomes very expensive for very high quality assets. We would rather be more cautious, we think there is plenty of value once you get beyond those prime markets. There are plenty of other regional towns and cities that have good demographics and strong office and property markets. It is not all about London.”
In terms of the IMA Property sector, the difference in returns in the past year is diverse, ranging from 28.23 per cent at the top of the table to a loss of 5.2 per cent at the bottom end.
But it’s not just the UK where property is offering investors decent returns, the two top-performing funds in the sector for the 12 months to June 12 both focus on European property, the £106.5m Premier Pan-European Property fund leads the way with a return of 28.23 per cent, followed by the €484.69m (£386.9m) Henderson Horizon Pan European Property Equities fund with a return of 24.83 per cent.
Nyree Stewart is features editor at Investment Adviser
