Aviva Investors have revised UK real estate returns for 2016 down to 6.6% following a slow start to the year.
Richard Levis, global real estate analyst said “Total returns for UK real estate continued to lose momentum in the first quarter of this year, with the IPD UK Monthly Index showing All Property returns at 1.1% − their lowest quarterly reading since 2012.
“This weaker result was expected, with a slowing in momentum seen since last year.”
He expects that the possibility of further Eurozone problems, Brexit and a faster rise in US interest rates could cause a further slowdown across Europe over the coming four years, with an average 5.1% total return.
However, he said market volatility has eased and REIT trading prices have risen since February.
“With property yields no longer falling as fast, maintaining income and generating rental growth will be drivers of performance in the near term. In this respect, we believe that the prospects in several property sectors are good.
He singled out regional offices and industrial assets as strong performers, but said prime London offices and retail could be more volatile.
“Yields in these parts of the market have reached all-time lows and they appear vulnerable to occupier demand shocks or unexpected interest rate tightening,” he said.
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