Five-year Property Forecasts Support Growth in interest

“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.

“Another interesting finding from the survey was a reported increase in interest in property because of changes to pension legislation and greater pension freedom,” Mr Hook says. “As it stands, 46.3 per cent reported ‘a little’ growth in interest and a further 13.5 per cent ‘quite a lot’. We anticipate that level of interest to grow further as changes come into force and those saving for retirement seek income-generating assets that can produce a good total return over the longer term.”

The managers also remain confident of the continued appeal of the Aviva Investors property funds, particularly for those who are looking to access property without taking the direct property management responsibility of such an investment. They believe clients recognise the added value of experienced managers and a wealth of resources in finding the best opportunities within the asset class for optimum risk-adjusted returns.

Find out more on www.avivainvestors.co.uk/property

*Source: Aviva Investors as at 31 December 2014

Important information

The value of an investment and any income from it may go down as well as up. Investors may not get back the original amount invested. Where funds are invested in property, investors may not be able to switch or cash in their investment when they want because property in the Fund may not always be readily saleable. If this is the case we may defer their request to switch or cash in their units. The value of property is a matter of a valuer’s opinion rather than fact.

Issued by Aviva Investors UK Fund Services Limited.

Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: No.1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk

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