Aviva Investors has revised its forecasts for the UK real estate market, predicting returns of 20% for this year.
The company said total returns were likely to exceed 20% by year-end, while 2015 could see returns of 17-18%.
With yield compression fading after 2015, Aviva said it forecasts returns of 8% a year for the next five years.
It said the upward leg in the UK real estate market cycle would last longer and go further – leading to a more optimistic view of the amount of value in the market.
Chris Urwin, Aviva Investors global research manager, said: “The UK real estate market has already recovered strongly, with total returns in 2014 likely to comfortably exceed 20%.”
Yields in some markets – such as central London offices – are now at or near record lows, “leading some to ask whether the cycle can go much further”, Urwin said.
“We believe it can and will,” he added.
Uriwn said there were few signs of an overheating market, with no evidence of a development boom, and the market not excessively leveraged.
“While real estate may look expensive relative to historic pricing levels, it certainly does not look expensive relative to other low-risk, income-producing asset classes,” Urwin said.
“Spreads between property and government bond yields are very high compared with levels experienced in the decade preceding the global financial crisis.”
Record low yields in parts of the market now look likely, he added, generating significant capital growth and boosting total returns in the near term.
“Thanks to the persistently low interest-rate environment, the window of opportunity to take advantage of the upward leg of the property cycle remains open,” Urwin said.
He said underweight positions in central London markets and overweight positions in rest of UK market segments made sense.
Offices outside central London and industrial assets outside the south east look the most attractive on a risk-adjusted basis, he added.