The UK commercial real estate market could post the best annual returns in 25 years, according to Real Estate.
The fund manager has made the case for a 20% return this year as strong capital inflows and occupier demand combine to produce a short-term spike in performance.
The report predicts annual returns to revert to 鈥渢he trend level of between 6% and 8%鈥� over the medium term.
M&G, owned by insurance company Prudential, said: 鈥淗eightened confidence in the UK鈥檚 economy, with growth ahead of its closest competitors, the US and Canada, is triggering increased occupier demand 鈥� particularly in the office and industrial markets. This demand is resulting in lower vacancy rates and accelerating rental growth.鈥�
It was also noted that secondary offices in the south east of the UK were outperforming prime assets, 鈥減roving prime is not always the best鈥�.
It said: 鈥淭hroughout the rest of the country, secondary stock is catching up with those of prime assets as risk appetite increases.鈥�
Richard Gwilliam, head of research at M&G Real Estate, said: 鈥淭he UK economy and property market are experiencing rapid growth, leaving behind a period of difficulty that discouraged risk appetite across the board. It鈥檚 a different picture now as the weight of capital targeting the sector is showing no signs of let-up. Investors, however, should not be blinded by a high short-term yield without fully assessing the risks to the long-term income stream of an asset.
鈥淭he strongest option for investors looking for mid to long-term rental growth is the office market encircling London, particularly those fringe areas benefiting from infrastructure projects.鈥�
