UK Commercial Property a Stand-out Performer

Investors looking for alternative exposure to mitigate lacklustre stocks and bonds could do worse than considering a UK commercia property fund

Andy Brunner 11 April, 2014 | 11:11AM

Weakness in UK equities has been a key feature of the first quarter of 2014, alongside a recovery in emerging markets. In a relatively unsettled period for financial markets, in the end there was little to choose between the asset classes.

The one asset class that continues to perform consistently well is UK commercial property. All the main subsectors enjoyed another month of positive capital growth in March and, encouragingly, good secondary property has become the main driver of returns with a notable narrowing of the spread between prime and secondary yields. The upturn is also spreading through the regions propelled by the sustained improvement in the UK economy and easier access to financing.

UK commercial property capital values continue to rise. The outlook for the year has become far clearer with improving financing availability and growing interest in secondary properties, even outside of the M25. Increases in capital values have overtaken income in monthly returns and, with a 6% starting yield and a still very wide yield gap relative to bonds and cash, property remains attractive to income-starved investors and those seeking an equity-like but lowish risk total return. While it can be difficult to find suitable vehicles investing directly into commercial property that can replicate IPD index performance, fund returns have certainly improved.

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About Author

Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK

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