Investors should not shy away from the secondary real estate market in the UK, but they do need to be risk aware when they buy assets in this sector. This is the opinion of Michael Keogh, senior investment and economic analyst at Henderson Global Investors, who told a Property Week webinar that, in the medium term, there is "probably less risk attached to good secondary assets than that of prime".
He went on to explain why he thinks investors should turn their attention to this section of the industry. "Choosing to ignore the wider market opportunities that exist through good secondary can be short-sighted, but it is an appreciation of the risk that is in those markets," Mr Keogh asserted. He acknowledged that secondary assets demand "more active management" than their prime counterparts, but stressed the rewards make it worthwhile. "I really do believe that it is more about being risk aware and not necessarily risk averse in the present climate to hit market returns," he concluded.
Mr Keogh highlighted fringe central London offices and locations that are attracting technology and creative firms as good places to look for commercial real estate investments. He noted that properties do not need to be in the capital to perform, suggesting that business parks near "prominent university cities" can also offer attractive investment opportunities. According to the most recent CBRE UK Monthly Index, offices offered the best returns in September, up by 0.3 per cent over August.
The firm also revealed that, year-on-year, offices generated returns of 4.2 per cent, although the industrial sector did even better posting a 4.6 per cent gain in the same timeframe. Retail is the weakest area of the UK commercial real estate market, providing just a 1.4 per cent return on investment annually in September. Senior analyst of economics and forecasting at CBRE Nick Parker also pointed to the relatively robust performance of the 'other property' sector so far in 2012, which covers a diverse selection of assets, such as gyms, cinemas and data centres.
- Tuesday 02 October 2012