REAL ESTATE - Pension funds can’t get enough of real estate, according to Association of Real Estate Funds (AREF) chairman Nick Cooper, with many of those already in the market increasing their holdings to 10% and above.

“Pension funds see real estate as a long-term asset,” said Cooper, who is also UK managing director of ING Real Estate. “Those with above 10% invested in real estate are holding it strategically. This isn’t opportunistic investment.”

In the wake of a report from Merrill Lynch claiming that real estate’s outperformance against equities had ended, Cooper said property was still holding its own as “a good income stream with an equities kick on top”.

Asked whether a significant rally in equities would threaten the trend, he said: “It’s a diversifying instrument. That’s why people are attracted to it.

“On the one hand, it sits with alternative investments such as hedge funds, commodities and private equity. On the other, it provides a good income stream compared with bonds. Which would you rather be left with: an Enron bond or the Enron building?”

He said a downturn in the more-or-less continuously pro-property trend over the past five years was unlikely. “Property would cease to be attractive to investors only if it turned negative in terms of returns,” he said, “but it all depends on what you define as an acceptable return. If pension funds are offered 4%-5%, they’ll take it.”

Given the relatively high cost of investing in real estate, the unlikely introduction of adverse taxation legislation would likely dampen investor enthusiasm. Otherwise, the remaining threat to real estate would come from a significant economic slowdown. “It would affect us but it would affect everyone else, too,” he said.