Is it time to move back into commercial property?

In terms of the outlook for commercial values, Turner said the mood of the industry is generally that the recent surge will come to a halt over summer.

Derivative pricing suggests average UK capital growth will be around 4% in 2010, and as the IPD monthly index has already recorded growth of 4.5% from January to April, the implication is that the rest of the year will see a 0.5% decline.

That said, the TR Property team stresses derivative pricing has been a less than perfect guide over the past 18 months and these figures are also average commercial property indices.

Overall, with the exception of the best office buildings in capital cities and units in top retail pitches, he describes tenant demand as still fragile across the UK and Europe. 

Reits face a headwind

While there is some consensus on a positive overall direction for commercial property, real estate investment trusts (Reits) have continued to struggle.

Turner holds all the big five UK Reits in TR Property for example but said that on a five-year total return basis, the vehicles stand out as poor investments relative to major Continental counterparts. ‘In part, this reflects the sharper fall in UK property values but also shows the impact of the dilution from the rights issues the boards imposed on shareholders 15 months ago.’

Again, there are serious bears out there on this part of the market and Mike Prew, analyst at Nomura, believes the persistence of discounts to NAV in the sector means the UK’s Reit experiment has failed.

‘By international comparisons, they remain unfamiliar and have excessive leveraging, expensive managements and low dividends,’ he said.

‘Land Securities and British Land forecast flat payouts for 2011, which is poor recompense for their rescue rights issues.’