High-rise funds climb nearer to their peak
Jenne Mannion wonders if new investors have left it too late to join the UK office party
Sunday 08 May 2005
ou might spend long hours in the office, but would you consider investing in it?
ou might spend long hours in the office, but would you consider investing in it?
Many ordinary savers who answered "yes" to that question have done rather well out of their decision. Funds investing in commercial property have turned in stellar performances over the past decade, beating shares and bonds hands down. Not surprisingly, they've now become a popular choice among investors.
The funds usually hold a portfolio of commercial property nationwide, ranging from the City of London to regional offices, retail buildings and industrial warehouses - as well as cash and shares in property companies such as Land Securities. They aim for profits from both rental income and capital growth - and since they avoid residential property, they are not at the mercy of fluctuations in the housing market.
Buoyant rental returns of around 7 per cent, rising property prices and a strong economy that has fuelled demand for office space have all helped increase the "yield" of commercial property funds.
A glance at the IPD UK All Property index, which measures returns from the sector, reveals robust growth. In the 10 years to 30 March this year, the average annual return has been 11.3 per cent. Compare this with 8.1 per cent for the FTSE All Share index and 8.54 per cent for government-backed bonds (gilts).
Over the past three years, commercial property has put shares and gilts in an even deeper shade: the index's average annual return has been 13.7 per cent, compared with 2 per cent for the All Share and 6.3 per cent for gilts.
Such is the popularity of these funds that three new ones - from Britannic Asset Management, Scottish Widows and F&C - have been launched in the past 12 months alone.
But a growing number of independent financial advisers (IFAs) believe the asset class is now overvalued and that new investors could be in danger of buying at the top of the market.
"Commercial property used to be seen as the investment cure for all ills - particularly during the bear market in equities four years ago," says Ben Yearsley of IFA Hargreaves Lansdown.
"A lot of people have piled in as a result, but the best returns are likely to be behind us."
Stuart Cowe, property research manager at the fund manager Scottish Widows Investment Partnership, predicts rental yields will hit a 15-year low this year. Nevertheless, he says commercial property will offer an average annual return of 10.5 per cent - "with much of the upside coming from capital growth due to the weight of money chasing property".
New Star's commercial property fund was the manager's top-seller last year. Its marketing director, Rob Page, doesn't believe that any overvaluation of commercial property today would lead to a huge fall in returns. "Previous property crashes were characterised by a huge oversupply of new development," he says. "This is not the case now."
While not everyone is so bullish about commercial property, a stake in such a fund should at least offer investors a degree of stability.
"You'll not see the same big daily movements in property as you would in equities, where the stock market can move up and down quite sharply," explains Mr Yearsley. "Steady returns mean commercial property can provide a good anchor to a diversified portfolio."
That anchor should be a small one, however - no more than 10 per cent of your portfolio, says Mr Yearsley. This figure is still too high for some. For example, Adrian Shandley of IFA Premier Wealth Management recommends 5 per cent.
Diving in at the deep end is no excuse for shirking the style stakes
Mark Dampier: A safe harbour if the market recovery has overreached itself
'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers
Bargain Hunter: Eurostar offers child fares for £1 each way to Paris, Brussels and Lille
Relaxed pensions rules: Guide to what they mean to you
Moment of truth for payday lenders: Watchdog plans to curb cost of short-term loans
- 2 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
- 3 Why I'm on the brink of burning my Israeli passport
- 4 L'Oreal cuts ties with Belgium supporter Axelle Despiegelaere after hunting trip photographs
- 5 The true Gaza back-story that the Israelis aren’t telling this week
Sustained immigration has not harmed Britons' employment, say government advisers
War is war: Why I stand with Israel
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Australia facing international condemnation after turning around Sri Lankans at sea
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
iJobs Money & Business
£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...
£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...
£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...
£40000 per annum: Harrington Starr: Network Engineer (CCNA, CCNP, Linux, OSPF,...
Day In a Page
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square