Robert Boag and the team at the £875 UK Commercial Property Trust believe that while there are still downside risks, the outlook for quality secondary assets is improving.
“The floor of achievable returns in these markets has increased and the market will see a convergence of headline returns,” they said.
While overall, the outperformance of central London will continue, Boag and his colleagues believe that weaker secondary sites will help the property sector achieve a total return in the region of 8.2% each year for the next three years, supported by strong demand and better prospects for economic growth.
More broadly, confidence around the property sector is increasing, with fund managers such as Aviva Investors’ Phil Nell now more willing to consider the opportunities in hard pressed pockets of the market such as the retail space.
Christopher Hill, chair of the trust, said that this improving sentiment was evident in both investment and occupier markets, and the shift was also beginning to feed through to the valuation of the vehicle’s portfolio, which grew by 1% over the third quarter.
Hill said the team is continuing to focus “considerable attention” on growing income, and expects its portfolio’s bias to the South East, where represents close to 60% of the fund if central London is included, to pay off, particularly in areas with robust income and occupancy profiles.
“In these circumstances, the company, with its strong balance sheet, will be able to identify and implement income and capital enhancing asset management initiatives and invest further in sound income-producing institutional-grade assets offering the potential to enhance income and capital value,” Hill added.
