UK - UK property as an asset class has demonstrated its value with returns in 2004 reaching a 10 year high, said Paul Herrington, managing director of F&C Property Asset Management.
“Whilst we think the 2004 return of 18.3% is an aberration, we do anticipate gains of 10% during 2005, a level which is still attractive but is also more sustainable,” said Herrington.
F&C anticipates all property returns to reach between 8.5 and 9% annually from 2005 to 2009. The sector, he said, is finding favour with pension funds, because of returns and its attractions for long-term investors.
While the retail sector was the best performer in 2004, this year it is likely to be hit by higher interest rates and the slowdown in the housing market which impacts on sales of household related goods. Herrington sees favourable prospects for the office sector this year, with a pick up in rental growth. He was particularly positive about the market in the West End of London, and the South East of England, and in certain provincial cities with a boost due to government decentralisation.
By contrast the industrial sector should benefit from stable income streams, if not rental growth.
“There are a number of factors that need to be assessed when looking at a commercial property investment,:” said Herrington. “Clearly the level of income yield is important but the extent to which this is sustainable is absolutely critical. At the macro level we take a view which sectors will perform best given the economic outlook and the lease expiry profile of our portfolios. At the individual property level we look at the quality of the underlying tenants, the length of the leases and of course, location, location, location.”
F&C will shortly launch its Commercial Property Trust, a £965m closed end property trust. It will invest in 30 properties - 37% offices, 19% shops 16% industrial, 16% retail warehouses and 12% shopping centres. It has a target initial yield of 6%.
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