Quarterly data show that secondary performance improved relative to prime over 2013.
The record differential between prime and secondary yields, weight of money and improved attitudes towards risk has encouraged more investors to consider higher-yielding assets, typically with a shorter income or a weaker covenant.
This shifting trend towards secondary reached a tipping point in Q4 2013, with all but two UK secondary property segments outperforming prime. This was sufficient to lift the secondary All Property total return above prime.
Positive yield impact is set to be maintained over 2014 as weight of money bids down yields for both prime and secondary assets. Consequently we expect All Property annual total return to rise to 12%.
During the domestic economic downturn and risk-averse period of 2008-13, prime outperformed secondary in every year. However, we now expect secondary to outperform prime for every year over 2014-18. Risk appetite is set to rise and the yield spread between secondary and prime set to fall, generating superior secondary yield impact, combined with already superior income return.
All Property total return is forecast to fall to 6.6% in 2015 as the interest rate environment begins to normalise and put pressure on prime yields. However secondary is still set to outperform as the yield spread continues to narrow.
Source : DTZ (Groupe UGL)