UK - Commercial real estate in the UK delivered double-digit returns in 2010, according to Investment Property Databank (IPD), but fund managers are preparing for a much leaner 2011.
The IPD UK Quarterly Property index showed total returns for the whole of 2010 equated to 15.2%, comprising 8.3% capital growth and 6.4% income.
But Standard Life fund manager David Stewart told delegates at the IPD results launch event that poor performing secondary assets would push capital values into negative territory this year.
"For 2011, there will be a slow start, with further capital value declines, especially for secondary stock, as more property starts to come onto the market and rental values decline.
"The London market's prospects look better placed, as the development supply taps have largely been turned off, while in the City there is little trace of new space coming through.
"So if you are lucky enough to have one of the few developments or refurbishments coming on stream, you should do well."
The final quarter of 2010 saw total returns on UK real estate at 2.8%, the product of a 1.3% capital growth and a 1.5% income return.
IPD's research director Malcolm Frodsham explained that underlying last year's 8.3% annual capital growth was a disconnect between falling yields, which had a positive impact on capital values, and modestly falling rents, which mitigated capital appreciation.
"There are remarkable parallels with the current cycle and that of the early 1990s," Frodsham said.
"Rents have recovered much more quickly this time around - when it reached this point in the 90s cycle, what followed was an 18-month lull in which rental growth hovered slightly above and below zero."
Frodsham asked delegates: "Are we going [into] a phase of zero to slightly negative rental growth until things start to pick up again around June 2012?"