EUROPE - Cordea Savills has secured capital commitments from three investors, including an unnamed European pension fund, for a new fund that will invest in core, income-producing commercial real estate in the UK.

The Cordea Savills UK Income and Growth Fund has attracted £70m (€80m) from the three investors, including Aviva Investors and another global multi-manager, although this is less than 10% of its £1bn overall fundraising target.

The fund is an open-ended, diversified vehicle designed to deliver distributions to investors in excess of 5%, as well as capital growth over the longer-term.

The fund is allowed to leverage up to 30% of the gross asset value.

"We are launching this fund in response to investor demand for a low-geared core fund with a transparent structure and no legacy issues," said Michael Flynn, head of institutional business at Cordea Savills.

The fund will invest in prime assets offering secure income streams across the main commercial sectors, including office, retail and industrial.

Fund manager George Tindley will target offices in London, Edinburgh, Glasgow, Leeds, Manchester, Birmingham and Bristol for the fund, and retail warehousing in areas of undersupply and with large catchments.

Tindley has also identified the industrial sector, specifically where assets have a proximity to motorways, underlying land value and long occupational leases, as another target market.

"Despite uncertain prospects in the short-term, we believe that UK prime commercial property is fairly priced and will perform well again once the occupational markets return to strength," said Tindley.

"The capital markets are maintaining their hunt for reliable income producing assets and this is encouraging domestic and international investors back into the UK property investment market, boosted by the relative weakness of sterling," he added.

Tindley believes the prime end of the market will be sustained by the weight of institutional and private money seeking higher returns which is secured against strong covenants.

"In the second half of 2010, we expect the supply of investment products will increase, providing more opportunities for investors but at the same time creating upward pressure on yields," he said.

"In these circumstances, stock selection skills will be more important than ever to deliver performance."

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