Personal Finance: Good pay at the office

House prices may be garnering all the headlines, but this may be the time to look at investing in commercial property.

The steep rise in house prices is impossible to ignore, but how about commercial property as an investment? Now could be a good time to get involved, some advisers say. Prospects for growth are good - commercial rents are climbing but construction remains sleepy. "The direct property market is very strong, because there is more demand than supply," says John Hammond, an investment analyst at Henderson Investors.

"The likelihood of supply picking up soon is not very great - we haven't had anything like the level of construction as in the Eighties."

One reason to invest in property is to reduce your risk through diversification. For an investor who owns a range of mainly equity investments, a property portfolio can provide a useful spread, say independent financial advisers the David Aaron Partnership.

"You are getting better yields on property than on equities or government securities," says their Michael Aaron. At present, property yields are under 7 per cent compared to the yield on the long Government bond of around 5 per cent.

"People haven't really looked at the property market for a long while," says Paul Talbot, of Portfolio Fund Management. "But with the equity market having risen to the level it has - and the gilt market has also had a phenomenal rise - property is a good alternative and defensive investment in that environment," he says. "And that does give an opportunity for long-term capital growth."

Collective investments such as unit trusts offer the best route. One of the problems with property unit trusts has been doubts about their liquidity. While a unit trust investing in quoted shares could swiftly sell its assets on the open market if it had to, a property unit trust would have real problems in the event of a sell-off by unit holders. Property cannot be sold quickly. This is why authorised property unit trusts have to hold at least 20 per cent of their assets liquid, usually in property shares.

But Portfolio Property Fund, launched in June, has an added safeguard. Its parent company, property company Liberty International, has guaranteed to buy up to pounds 5m of units a month for up to five months, if needed.

Tim Cockerill, of independent financial advisers Whitechurch Securities, recommends Norwich Property unit trust. It is the largest property unit trust, with assets of pounds 250m, and was launched nearly eight years ago.

Of property bonds on offer, Michael Aaron recommends investing in Allied Dunbar's. "They are one of the longer established ones, and yield just over 8 per cent," he says.

Property shares are another matter. Some analysts believe the sector is too volatile for the smaller investor. But Adrian Elwood, property specialist at stockbrokers Sutherlands, says many private stockmarket investors favour the sector, partly because they feel they know about property through owning a house.

But Roy Kaitcer of stockbrokers Brewin Dolphin says: "Generally speaking, property shares have been quite disappointing, bearing in mind current low interest rates."

Mr Elwood says: "Property shares underperformed dramatically at the end of last year. There were bargains around; now that is less the case but you can still get very good value." He sees greatest potential in medium-sized property companies, with pounds 200m to pounds 400m market capitalisation.

Derwent Valley, which owns offices in London's West End and retail and restaurant properties, is attractive and reasonably priced, as are the shares of Capital & Regional, which owns secondary shopping centres, says Mr Elwood.

But you could leave stockpicking to the professionals and opt for an investment trust. TR Property investment trust, run by Henderson Investors, trades at a 17 per cent discount to net asset value. Wigmore Property, which specialises in small to medium-sized companies, is smaller and trades at a 24 per cent discount.

The property sector is buzzing with mergers and acquisitions, which means the smaller end of the market appears the best place to be. "There are still far too many small companies," says John Hammond.

David Aaron Partnership (01908 281544) publishes a `Commercial Property Guide', free for Independent readers apart from pounds 2 p&p.

Property Portfolio Fund: 0171 588 8890; Henderson Investors: 0171-638 5757; Sutherlands: 0171-628 2030

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent
Markus Persson: If being that rich is so bad, why not just give it all away?

That's a bit rich

The billionaire inventor of computer game Minecraft says he is bored, lonely and isolated by his vast wealth. If it’s that bad, says Simon Kelner, why not just give it all away?
Euro 2016: Chris Coleman on course to end half a century of hurt for Wales

Coleman on course to end half a century of hurt for Wales

Wales last qualified for major tournament in 1958 but after several near misses the current crop can book place at Euro 2016 and end all the indifference
Rugby World Cup 2015: The tournament's forgotten XV

Forgotten XV of the rugby World Cup

Now the squads are out, Chris Hewett picks a side of stars who missed the cut
A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago