European and US real estate offering highly competitive returns will emerge

The global investment management firm's latest research revealed fewer markets were forecast to generate "outstanding returns" in the short-run, but recent re-pricing meant that despite the increased occupational risks, European real estate offered investors "acceptable returns".

It found opportunities were likely to emerge that would allow investors to acquire real estate assets which produce high real cash returns that were competitive with the bond market and some what "isolated" from equity market volatility.

The research showed that in the short-term, bond yields were expected to continue to be volatile and said this would cause problems when assessing the appropriate risk premia that applied to real estate investments.

However, Invesco said the current conditions also presented opportunities. It claimed that as economic activity slows, inflation fears were likely to subside.

The firm expected the current conditions to prevail over the next 12 months as the moderation of global economic activity continued and warned there was a need to focus on the entire real estate value chain - as financial engineering was no longer the "boost to returns" it used to be.

Invesco's findings will come as a welcome relief for UK pension funds, as a report - published earlier this year, revealed over 25% of UK pension funds planned to increase their asset allocation to property.

PRUPIM head of research Paul McNamara said that no matter how "perplexed and sore" pension schemes were following economic turbulence, the findings confirmed the long sighted nature of pension schemes as investors.

He said: "A decade ago we would have been surprised to find UK pension funds with any exposure to overseas real estate.

"Diversification continues to be the main reason pension funds are investing in real estate."