The commercial property sector is cyclical, so it is important to have a flexible approach if you want to exploit the unique benefits of indirect property investment. The sector’s three key sub-sectors, office, retail and industrial, have all benefited from rising values in the past two years. However, as the market becomes tougher, a property fund’s ability to target niche property companies will be key if it is to continue to produce attractive returns.

At present, returns from quoted European property seem the most attractive. There are two reasons for this. Firstly, Europe is where the final leg in the globalisation of real estate investment trusts (Reits) is about to take place, with the UK and Germany, Europe’s largest real estate market, soon to introduce them. Italian, Scandinavian and eastern European governments are also drawing up Reit proposals.

There are now around 25 property fund of funds in Europe, pursuing a variety of strategies. Assuming an average size of around 250m, a typical fund of funds is likely to invest in 10-15 ‘best in class’ funds, creating exposure diversified by country, sector, manager and market cycles.

We anticipate continued growth in fund choice, as well as market transparency, professionalism and liquidity. In addition, growth in niche sectors such as car parks, petrol filling stations and hospitals will surely continue. We are beginning to see growth in property derivatives, and these will present interesting opportunities for investors. By combining a top-down investment approach, with a bottom-up stock-driven approach investors are able to achieve exposure to high quality, diversified, portfolios of property.