UK real estate will continue to provide good value relative to bonds, and income is set to provide the majority of return for investors in the next few years rather than capital growth, according to Standard Life Investments.
Anne Breen, head of real estate research and strategy, said: “It’s all about cash flow for investors now, whether you are looking at an industrial building in the South East or an iconic building like the Gherkin. We won’t see a return to the acceleration in capital values that we saw in the run-up to 2007.”
Standard Life Investments called its outlook for UK real estate returns “boring, but stable”, anticipating 5-8.5% returns in the next three years. However, real estate’s margin with gilts remains attractive to investors, at 3.5%.
“The gap between real estate and bond yields is currently the highest it’s ever been, and our data goes back to 1930” said Breen, speaking at a briefing at Standard Life Investments’ London offices.
Standard Life Investments is actively considering a move into the debt space, according to head of real estate, David Paine: “there is a compelling story in the risk-return balance that real estate debt offers. We’re at the formative stages of evaluating where to go with this opportunity.”
Sophia.furber@estatesgazette.com
