UK commercial property investment offers good returns

People investing the UK commercial property market made an average return of 18 per cent last year, outstripping the equity market and domestic house prices.

The stock market produced a total return of 11.7 per cent in 2004, according to Fidelity Investment, and the country's largest mortgage lender Halifax found that domestic house prices rose 15.1 per cent over the course of the year.

But investments in UK commercial property enjoyed their twelfth consecutive year of positive return, Abbey has found, with the strongest sector (retail) returning 21 per cent.

"It's understandable why commercial property has returned to favour, given the long term consistency of returns and an overall disappointing performance from equities," said John Kelly, head of the Multi manager investment funds at Abbey.

"With bond yields falling, investors have looked widely to find reasonable levels of income, often accepting more risk in the process.

"However, there is some reason for caution. We need to look at the valuation of the sector, to see how much has been priced into expectations and then at how valuations are arrived at to see how change can sneak up and surprise," he added.

Private investors can benefit from the commercial property market through both pension funds and investment vehicles like OEICs (open ended investment companies) where money is pooled with other investors' money allowing larger and more widespread investment than would be possible individually.