Investors can benefit from yields of 7.5% and above from UK commercial property, thanks to low capital values and rising rents.
Anne Breen, head of real estate research and strategy at Standard Life Investments, says investors in UK commercial property can expect yields of nearly 8% over the next three years.
She also cites "increasingly strained" supply, and a low level of construction activity in the property sector as reasons for the stable yield.
Breen adds that offices in core central business districts such as the City and the West End of London, and large regional shopping centres are the most attractive commercial property investment at the moment. At the other end of the spectrum, small high-street shops and smaller shopping centres are the worst.
Muted outlook
However, she warns that there is a "muted outlook for capital values", and investors in commercial property should expect the majority of returns to come from income.
Meanwhile Standard Life Investments, which invests in commercial property globally, expects returns in the US and Asia to hit 8.5% over the next three years.
Over one year, Aviva Investors Property Trust is the best performing fund, returning 14%, while First State Global Property Securities is the top performer over three years, soaring 78%.
In the investment trust world, MedicX is the top performer over one year, adding 9% in share price terms. Over three years, Aseana Properties comes out on top, returning 121%.
This article was written by our sister website Money Observer
Yield
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Investment trust
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Estate
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
