The current appeal of offices will prove to be short term, while residential property in the UK will dominate in the long run, a survey of members of the Association of Real Estate Funds (AREF) has found.

In a report from AREF following its annual ‘Vision’ event, members with £50bn invested in the UK economy reached the consensus that residential offered the greatest long-term attractions and has the potential to become the largest sector.

The sector’s strong fundamentals were put down to government policy and appetite from local government pension schemes.

Other sectors, such as retail and logistics, offer opportunities on a case-by-case basis, AREF members said, while their view on offices was mixed, with many seeing prospects for shorter-term buying, renovating and selling.

Meanwhile, fund managers noted returning investor appetite for UK property and believe real estate can compete successfully for capital in private-asset allocations, chiefly because of its ability to offer income growth.

International capital that might normally have gone to the US is switching to Europe, including the UK, the report found, reflecting the latter’s comparatively stable fiscal and regulatory environments.

AREF chief executive Paul Richards said: “The UK’s real estate fund managers see plenty of opportunity in modern Britain. This reflects their successful ability to identify short and long-term trends – and good examples of these are offices and residential, respectively.

“Offices attract as opportunities for renovation and selling, and residential because the UK housing crisis requires immediate and lasting solutions. That’s where our members come in.

“The economic analysis also suggests we’re at an attractive entry point. Since 1945, UK real estate has typically offered its many investors an annualised return of about 4.5%, after you deduct inflation. Now, we’re seeing returns of about 5%. That’s a favourable comparison, particularly given the long-term opportunities ahead.”