Steve Lang, Director of Savills Research, said: "Property has a dual role of securing income return and capital growth. Buoyant economic conditions often provoke headlines regarding capital value movements and the less volatile income return is overlooked. It is worth noting this income not only provides investment return but helps keep the loan servicers at bay when capital values do decline."
The report demonstrates that property is resilient in delivering income, even in a downturn, and that the challenge is to obtain returns that will match investors’ liabilities for example 5-10% is achievable. It notes that average UK property is yielding 9.2% (August 2009) and according to recent stats 12% of pension funds would now like to increase property exposure. With demand increasing pricing pressure on prime traditional assets of retail, offices and industrial, which offer longer-term income streams and strong covenants, the "buy list" is likely to be extended.
Savills said investors had typically viewed government-leased property and big corporates as secure but following 10,000 company insolvencies during year end Q209, there were questions about the real security of these large corporates. Subsequent reports will focus on assets which may offer diversification and stable cash flow including healthcare and self storage, released in October and November respectively, having already looked at serviced apartments and student accommodation earlier in the year.
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