Real Estate Investment Trusts (REITs) have helped to attract property investors, who are looking for exposure to commercial property, in the United Kingdom, but the strong returns over the last year are not set to continue. Head of Standard Life Investments Andrew Milligan believes that re-valuation of commercial property against other classes has enhanced returns and the drivers are now well priced in.
However, Standard Life Investments believe that geographical diversification is important, as most investors will have a high proportion of their overall wealth already tied up in their own home.
Our view
The yield is an important part of Real Estate Investment Trusts (REITs) and it is important to be aware of the range of yields on offer. In the United Kingdom the REIT yield is in line with the dividend yields around 2 – 4 percent, however in Japan it is between 3-6 percent. We believe you should pay attention to valuations, which are deteriorating in some areas and make sure you have a strong fund manager to take advantage of any changes in the market.