The funds, which buy offices, shopping centres and warehouses, have benefited from rising capital values and strong demand from tenants.
But some experts have cautioned that the easy money has now been made and investors should consider looking further afield.
The consensus, however, is that commercial property is not a bubble waiting to pop. Instead the outlook remains promising, but returns are expected to cool from here.
Gary Potter, who runs “funds of funds” for F&C Investments, pointed out that yields on commercial property funds had fallen naturally following the sector’s strong performance and were now arguably too low for some income-hungry investors.
“Investors continue to buy, but what are they getting? Yields of 3pc, perhaps 4pc at best,” he said. “I am cautious when an investment becomes fashionable, which often happens towards the latter stages of a cycle. This certainly applies to commercial property funds.”
For investors who want income of around 4pc Mr Potter said the UK stock market, with the FTSE 100 currently yielding 3.9pc, should be the first port of call.
For those who want potentially higher returns, and are prepared to stomach more risk, there are a number of property funds that specialise in areas off the beaten track and produce higher yields. Here we name five offbeat ways to invest in property.
1. Student accommodation
First on our list is GCP Student Living, a real estate investment trust that owns a portfolio of student accommodation properties in and around London.
The shares listed in May 2013 at £1 and were trading this week just below £1.40.
Mr Potter owns a small position after being attracted by the “strong management team that knows what it is doing”.
The fact that more and more overseas students are coming to Britain to study is viewed as a positive, stimulating demand. GCP Student Living said there was a shortfall of around 170,000 university beds in 2014.
The fund targets a total return of 8pc‑10pc a year. The yield is currently 4.2pc.
Charges are high at 4.1pc a year. The trust’s shares are also trading at a 5.3pc premium to the value of its assets.
The other real estate investment trust that specialises in student property is Empiric Student Property. This trust favours city-centre locations and owns around 30 properties.
The charge is again high, at 3.9pc. The premium is also pricey at 8pc. The yield, however, is more attractive, at 5.4pc, thanks to the trust being less focused on London.
2. Doctors’ surgeries
A small number of investment trusts invest solely in “primary healthcare infrastructure”, principally properties let to GP practices and other parts of the NHS.
One of these trusts is MedicX, which yields 7pc. But the premium is enormous, at 39pc.
Analysts like the fact that the trust’s assets, if not its own shares, should perform independently of the stock market.
Alan Brierley of Canaccord Genuity, the stockbroker, rates MedicX a “buy”. “It holds very long-term contracts with the Government for these facilities,” he said.
Other trusts that specialise in this niche area include Primary Health Properties and Assura.
MedicX offers an attractive yield that brokers say can be maintained Photo: ALAMY
3. German property
Germany is a nation of tenants, who historically have not shared our obsession with home ownership.
But its property market is booming, with wealthy international investors piling in. Berlin, in particular, is fast becoming a property hotspot.
A trust set up in 2006 to buy property in Berlin is directly positioned to profit. Taliesin Property, listed on London’s junior Aim stock market, buys residential and commercial properties. The majority are tenanted flats.
Many of its properties were bought at knock-down prices, well before property values started to rise a couple of years ago.
According to Nick Greenwood, who manages the Miton Worldwide Growth investment trust, which has 5.2pc of its money in Talesin, the value of certain properties in the portfolio has doubled.
He said rents were also being driven up, despite tight legal controls.
“Taliesin refurbishes properties; in turn this allows rents to be increased and gets around the rent controls. Properties are either leased out at a higher price or the existing tenants have to pay more,” Mr Greenwood said.
“But the big attraction is that capital values are rising. Berlin has moved from urban wilderness to a major European capital within a generation and is now viewed as a trendy place to live.
“As more and more young professionals move to Berlin I think there will be change in attitude to owning a property. Those under the age of 40, who will have seen property values rise elsewhere, such as in London, will increasingly buy instead of being happy to rent forever.”
The fund reinvests all of its income. It has a high annual charge of 5.5pc and the shares trade at a huge premium of 37pc. It also has “zero-dividend preference shares” that mature in September 2018.
Germany is a nation of tenants, but its property market is booming Photo: Alamy
More on Germany…
4. Care homes
Another fund that has defensive characteristics and benefits from favourable demographic trends is Target Healthcare, a real estate investment trust that invests in purpose-built care homes.
It takes out long leaseholds, 29 years on average, in areas where there is a imbalance between demand and supply. It currently has 31 homes on its books.
Innes Urquhart of Winterflood, the stockbroker, said: “The biggest risk, as with other property investments, is that the tenant defaults. But the trust has grown its assets from £46m at launch in March 2013 to £140m today, so it has become much more diversified.”
The annual charge is 1.36pc, while the premium stands at 10pc.
Targeting annual returns of 5pc is the Freehold Income Authorised fund.
The fund buys property freeholds, mainly from property developers. It then pockets the ground rent paid annually by leaseholders.
The portfolio owns more than 64,900 freeholds, 80pc of which have some link to inflation.
Time Investments, the fund manager, said it had an unbroken 22-year track record of positive inflation-beating returns since launch in 1993.
Over the past year, to the end of September, total returns stood at 11pc. It yields 2.4pc, according to Bestinvest, the broker.
It can be purchased only through financial advisers and costs 1.64pc a year.
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