Despite forecasts that Euroland equities will produce a total investment return of 12% next year, average returns from commercial real estate up to 2008 is set to prove a better investment, according to Scottish Widows Investment Partnership (SWIP).

"European commercial property is forecast to generate a (average annualised) return (capital gains plus income) of 8.7 percent a year over the next four years compared to a forecast of 8.5 percent a year from European equities," said SWIP.

The generic advice from SWIP, is that investors should aim to diversify their equity and bond pension fund investments with a greater portion of their portfolio invested in alternative assets such as European commercial property over the next four years, in order to maximise their potential returns.

"European real estate has a low correlation with equity and bond performance as commercial property returns are driven by different local factors in different countries. Bonds and equities, however, are more synchronised and more affected by global economic issues," said Ian Hally, head of property research at SWIP.