Legal & General Property (LGP) has estimated that 2013 will see an improvement in the commercial property sector.
The firm has suggested that investors could see improved returns this year. LGP believes that this shift will be caused by a new determination from central European banks, credit markets in the sector beginning to ease and that many investors are seeing the risk of the commercial property sector as more attractive than other averages.
With the economy slowly improving, this means that commercial property prices are starting to be slashed, which only means a further attractive proposition for investors who may be looking to shift their money from equity assets.
LGP has especially signposted alternative commercial property as a key player in the recovery of the sector. Rob Martin, director of research at LGP, said: “Student accommodation and social care facilities such as care homes for example, provide long, index-linked contracts which are a particularly good match for many investors’ liabilities.”
With stable prices and values being at 30 per cent below a crisis level, banks in the UK generally seem to be more likely to lend money to commercial property, allowing the market to stabilise for the time being.
This increased appetite will then only encourage more people to invest in ‘secondary’ properties which are more risky, cheaper and less desirable. Mr Martin further argues that it is investment in these properties which will initiate major growth within the sector.
This good news comes after returns were very poor in 2012, having fallen by about three per cent. Total returns over the past five years within the sector have been only 0.5 per cent a year on average.