According to George Shaw, manager of the circa £860 million Ignis UK Property Fund, his team is predicting total returns of 8.7% for 2011, significantly higher than the IPF consensus of 7.4% and the PMA of 6.7%.
‘Throughout 2011 we have consistently remained ahead of consensus expectations for total returns in 2011. Ignis has taken the view that market average capital growth would be flattered by strong investor demand for prime assets, particularly in Central London,’ he said.
Shaw also believes that total returns will be driven by income returns in the short to medium term, with capital appreciation, at best, matching inflation.
Shaw continues that he expects values for secondary assets to remain under downward pressure, although he does comment that the pricing of some ‘upper secondary' locations are now close to their nadir, as investors with money to spend have no choice but to ‘inch up the risk curve'.
‘Secondary assets in the majority of the market remain vulnerable to capital decline, hence our bias towards prime properties and our significant exposure to Central London particularly, where performance prospects are strongest,’ he explained.
Shaw believes that Central London offices will be the top performing sector over the next three years, although he warns that by 2013 the margin of outperformance will be significantly reduced.
In addition, he predicts rental growth in the retail sector, with the exception of London and the South East and the top 20 or so locations, will remain at a level well below those delivered by the High St sector over the past two decades.
‘Going forward we will be monitoring signs of commercial property becoming mispriced relative to other asset classes and capitalising on the opportunities that this is likely to present.
"This could involve picking up assets from investors withdrawing from or reducing, exposure to property; or through situations where we are able to add value through proactive asset management,’ he said.
Over the three months to the 31 August the Ignis UK Property fund rose by 0.9% compared to the peer group average of -0.6%. Medium term performance remains significantly ahead of the peer group, with the fund returning 9.9% over the three years to end August. This is compared to the peer group average of -0.7%.
