The Morningstar Economic Update said listed property in both the US and UK has delivered strong returns, with the US IPD quarterly survey for March showing a total return from holding property over the past year of 11.6 per cent.
The UK did even better, with the IPD UK index returning 17.6 per cent over the past year, led by offices at 23.2 per cent and industrial properties at 22.3 per cent.
In Australia, A-REITS also experienced a good half-year, according to Morningstar, generating a return of 12.7 per cent comprising a capital gain of 7.7 per cent and income distributions of 4.6 per cent.
Morningstar said early investor reaction to the restructuring of Westfield and Scentre was positive, with Westfield rising from $7.05 to $7.45 and Scentre rising from $3.05 to $3.40.
While international property began the year slowly, returning four per cent in the March quarter, it improved in April and May, bringing the total return for the half-year to 12.4 per cent in overseas currency terms.
Japan was the worst performing market and property shares dropped 7.6 per cent due to the overall weakness of the Japanese share market.
AMP Capital chief economist Shane Oliver also believes the outlook for the economy is likely to support commercial property.
While housing investment is “not the great investment it once was” with returns now slowing, non-residential property is a good option for investors looking for strong yield, he said.
Morningstar said valuations remain a problem for investors, however, given that the global real estate index series, the EPRA/NAREIT, is only 3.6 per cent, which is a low target rate of income from property as an investment.
The low rate of income also makes it vulnerable to higher bond yields.
Morningstar said the search for yield in countries such as Germany and the UK has also driven local listed property yields down to, or below the yield of the share market overall.
