UK - Aberdeen Property Investors is warning schemes that property returns will drop sharply in 2003 due to falling rents in London and southern England.
Amid volatile markets, many pension funds have allocated to property for both diversification purposes and to minimise downside risk.
Property returned 9.7% during 2002 (Investment Property Databank figures) but with the economic downturn putting pressure on firms and rents, API believes property can only muster 4.1% over 2003.
But API said that companies’ capital growth and rents will pick up in 2004.
This should boost total returns to around 8.4% in 2004, rising to 10.9% in 2005, the firm predicts.
UK chief executive David Hunter said schemes’ demands for property should grow, despite the expected dip in returns.
“The rental fall in central London and in the ‘western corridor’ will beapparent in valuations later in the year.
“The downturn will be a catalyst for buying opportunities for those prepared to take selective risks.
He added: “Investors will continue to favour property but weaker market fundamentals and reviving confidence in equities will allow yields to soften until there are more tangible signs of a rental recovery.”
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