Aberdeen completes £250 million investment into UK property market as investor interest builds

Aberdeen Property Investors has acquired around £250m of UK commercial properties in the last three months on behalf of institutional clients. All of the group’s segregated UK direct property clients have allocated additional funds to invest or have indicated funds may be made available on a case-by-case basis. In aggregate this totals an additional £500 million to be invested, of which a number of deals have already been identified.

Investor interest in UK property has risen over recent months as property has looked increasingly attractive, relative to other asset classes, from a yield perspective. Property’s yield premia over low risk asset classes, such as nominal government bonds, index-linked government bonds and cash have remained at very high levels. As investor risk aversion has receded yields on higher risk assets, such as corporate bonds and equities, have fallen sharply over the past year and property yields look set to follow.

Although appetite for UK property has picked up, liquidity issues, due to a lack of stock, have meant many investors have been unable to source attractive opportunities to buy. However, through Aberdeen’s rigorous investment process – incorporating in-depth, top-down research and bottom-up fundamental analysis – and its extensive market contacts, we have been able to source and complete a wide range of deals on behalf of clients. Properties recently acquired include a student accommodation block in Bournemouth; a grade A office development in Glasgow and a retail park in Llanelli.

Looking ahead, competitive bidding, combined with a lack of stock, is likely to continue to drive capital values up in the short term. This should result in a very strong level of projected
performance in 2010, with total returns expected to be 16%, due to investor demand driving values strongly higher, despite rents still falling in all sectors. From a five year view point we are forecasting an annualised return of 9.2%. The majority of this (approximately 7%) will be delivered by income return, with the remainder coming from some strong capital returns over the next year.

John O’Connor, managing director of Aberdeen Property Investors UK, comments: “The high income return available from UK property relative to other asset classes and overseas property is very attractive. While capital values have recovered somewhat we continue to be able to identify long-term total return opportunities located throughout the UK and in all market segments. Our size and reach in the market has allowed us to complete 15 acquisitions with a market value of £250 million. Over the next few months we hope to invest £500 million on behalf of our clients.”

source : Aberdeen Property Investors