Aviva Investors is predicting double-digit growth for the UK property market in 2014-2015 following a strong performance in 2013.

Aviva Investors is predicting double-digit growth for the UK property market in 2014-2015 following a strong performance in 2013.

UK real estate ended 2013 on a high, with the IPD UK Monthly Property Index returning 10.9% year-on-year in December. That figure marked the first double-digit gain in three years.

In a sign of a turnaround in the market, UK institutions are now net buyers of real estate and retail investors are increasing their real estate exposure, Aviva Investors said in a press release. At the same time, there was a big rise in demand for real estate debt over the last quarter of 2013, according to a closely watched report from the Bank of England.

Chris Urwin, Global Research Manager, Real Estate, said: 'We have upgraded our near-term forecasts as a consequence of stronger-than-expected market momentum, and in expectation of further improvements in the economic environment, investor confidence and lending conditions. We now expect the IPD All-Property Index to deliver double-digit returns this year and next.'

According to Aviva, the majority of UK real-estate sectors remain attractively priced relative to other income-producing asset classes although the recent increase in government bond yields pose a risk to the relative attractiveness of central London markets where yields in some districts have fallen to record lows. By contrast, Aviva believes higher-yielding sectors could outperform throughout its five-year forecast period.

In 2013, the Central London office market saw above trend take up and declining availability, Aviva said. 'More new space will be completed this year but this increase in supply is set to coincide with strengthening demand. Occupier sentiment is improving with signs of pickup in the banking and finance sectors in the City.'

The major regional markets are also showing increased signs of life, according to the report. Retail occupier markets are still generally difficult with rents continuing to decline in most parts of the market, but conditions in Central London are very buoyant and rents continue to advance.

The UK industrial sector staged a recovery during 2013 and most indicators point to further growth in the period ahead, Urwin said. 'As we enter 2014, we believe the outlook for direct UK real estate continues to look increasingly positive. Growing confidence in the economic recovery bodes well for a gradual return to rental growth across all parts of the market. Reduced macro risks are positive for risk appetite and we expect a strong market in the near term driven by improving fundamentals, further easing of credit conditions and growing investor interest. Secondary and regional markets look very attractively priced currently and we believe these are likely to perform particularly well over the coming years.'