International investment will be the dominant trend of 2006, according to both institutional and corporate investors.
Industry experts predict that the market will diversify and chase higher returns in recovering and high-yielding markets, to complement UK commercial property.
Standard Life head of research Anne Leckie said: “2006 will be the year that UK property investors go global. They will be forced to look internationally more than they have done, in part by the high economic growth forecasts in some areas.
“The move will be done through indirect investments such as real estate investment trusts and funds.” Areas to look out for include Hong Kong offices and Southern European retail markets, especially warehouses, she said.
Scottish Widows Investment Partnership head of real estate research Ian Hally concurred: “While up to a third of pension funds’ equity portfolios are invested internationally, less than 5% of property portfolios are invested internationally.”
Hally said SWIP was advising clients to put around 10-15% of their property portfolios into international investments, mainly European.
Robert Houston, UK chairman and chief executive of ING Real Estate Investment Management, said he expected international investment to be in addition to, rather than instead of, UK holdings. In total, the company expects to invest around £1bn this year. “While we don’t expect property allocations to increase significantly in 2006, I suspect many institutions have not reached their targets of 8-15%,” he said.
Despite the move abroad, investors still expect UK property to perform well in 2006, with double-digit growth led by central London offices.
CB Richard Ellis capital markets chairman Greg Nicholson said 2005 had been another bumper year. He predicted that total returns would hit 2004’s 18.3% and total transactions exceed £50bn, a 20% jump on 2004.
