Ignis Asset Management is forecasting an 11.5% total return for the UK commercial property next year, above consensus forecasts which are themselves at their highest levels post-crisis.
Last month’s IPF Consensus Forecast predicted an average total return figure of 9.3% for next year, the highest since the 18.9% return seen in 2006.
Ignis’s latest forecast is 2% stronger than those consensus expectations for next year, with offices expected to be the top-performing sector at 13.8%.
Despite widespread concerns about the property market overheating, George Shaw, manager of the £1.1 billion Ignis UK Property fund, said yields could sustain a re-rating in 2014 without entering bubble territory.
“Since the market started to recover in 2009, a more appropriate allowance for price discrimination across markets has been applied,” he said.
“Average property capital values remain about 30% below the previous peak recorded in 2007. Those sectors that continue to face fundamental challenges remain significantly behind, while markets with clear growth prospects have recouped a much greater proportion of those capital declines.
“We are confident memories of 2007 are recent enough to prevent the industry going there again.”
While yields are expected to decline in 2015, Ignis predicts an annualized total return of 8.7% over the next three years.
“We believe property yields can maintain a healthy margin ahead of gilt yields despite a forecast rise in gilt yields over the next five years,” Shaw added.