REAL ESTATE - The closure of defined benefits pension schemes will boost the success of UK REITs to the levels of their US counterparts, according to an assessment by custodian Northern Trust.

The report, published three months after REITs were introduced in the UK, claims changes in the pension environment had encouraged pension funds to view real estate as an income-producing "strategic asset class", alongside bonds and equities.

It also identifies low interest rates and increased property allocations as drivers of REITs’ likely success.

However, John Marren, head of European property administration at Northern Trust, said UK investors were unlikely to abandon their current forays into mature European markets for REITs.

"It’s an additional trend rather than an alternative trend," he told IPE Real Estate, adding that the UK market had some investment opportunities left in it.

"The UK commercial property market has peaked but it won’t fall off a cliff-face. It’s just that after 2007 returns will be more moderate," he said.

"There are some opportunities for performance in European property [because of macro factors]. The interest rate environment is still benign, as is the yield gap."

REITs have in their favour avoidance of double taxation and liquidity direct investment lacks. "Most pension funds seek to diversify their exposure as much as they can," said Marren. "Liquidity is a big advantage. It’s appealing."

The report was marginally more cautious. "Only time will tell if they live up to the hype," it said.