This year will see the start of a revival in UK property, Aviva Investors said today, in a note arguing that secondary assets offered “compelling value”.

Property fund manager Anna Rule said: “Aviva Investors believes that 2013 will mark a turning point for the UK real estate market and that in particular secondary assets currently look cheap compared to prime assets and will drive strong medium-term performance in the UK market.”

While prime assets have performed strongly in recent years, secondary property prices have lagged. That is set to change, Rule said.

“Over the next five years, we believe that higher yielding sectors will drive the market-wide improvement in the UK. Our research suggests that the premium for holding secondary real estate is at high levels by historical standards and much higher than seen before 2007.”

Secondary real estate was likely to outperform prime assets and sectors such as industrials and offices outside London to outperform on a risk-adjusted basis over the medium term, she added. However, investors were warned to be “selective”, taking a stock-picking approach to find assets where rental levels are sustainable.

“Income risks remain elevated, especially in several markets which are threatened by high rates of obsolescence,” Rule warned. The firm is also cautious about high street retail, due to structural shifts in the sector, including the growth of internet shopping.

The forecast is predicated on the sounder fundamentals in the economy, which Aviva expects to experience “gradual but sustained” improvement.

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