“Engaging with clients is key, particularly when we are dealing with a fairly illiquid asset class. It is vital to maintain contact and to understand their motivations and risk-return parameters,” Mr Nell confirms. Mr Hook adds “Overall, the findings have been very encouraging. They come off the back of a relatively strong year in 2014, where high levels of demand for real estate were met with improving occupier fundamentals. We are also looking forward to some attractive market forecasts for the next five years, which again helps explain the growing interest in property that came through in the survey.”
Indeed, when asked if they had increased or decreased their allocation to property compared with five years ago, 31 per cent of respondents said they had increased their allocation by up to 10 per cent, 9 per cent by 10-20 per cent and 4.5 per cent by more than 20 per cent. This increased interest in the sector is indicative of the perceived value in the future.
Mr Hook continues: “Our in-house strategy team are forecasting returns of 9 per cent per annum for the UK for the period 2015-19*. That is particularly attractive in today’s market, especially as property is an income-producing asset. In addition, our research team has also compiled some very interesting analysis regarding relative pricing. Certainly against fixed income we see real estate as attractively priced. It might look slightly more expensive against equities, but overall, the feel is that, property is fairly priced on a relative basis and can still offer good value to investors over the long-term.”
This view was supported in this survey, with 74 per cent of respondents stating that property yields were fair in relation to other asset classes and, in particular, bond and equity yields. Within that, there was particular support for investment in the UK in general, with 69 per cent of those asked saying they would consider investing in that area over the next 12 months, with 48 per cent of the total expressing a specific interest in London and the south east. Meanwhile, 23 per cent would look to invest in Europe excluding the UK over the next 12 months, while 18.5 per cent would consider the Asia Pacific region.
“In terms of how our funds are positioned, for our UK-focused fund, we are targeting the strong recovery we are seeing in some of the regional markets,” explains Mr Nell. “Falling inflation and a more empowered consumer is helping the retail sector to pick up, which is interesting as it has been the laggard over the last few years. Looking at the occupier market, it is fair to say that recovery is asset specific. We are seeing strong demand for certain buildings in strong regional central business districts, such as Manchester and Birmingham, but there are still buildings that are empty because they are not fit for purpose. As ever, it is vital to have a thorough understanding of the specific assets, as well as general market trends.