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Investors opt for commercial property

A report by Jones Lang LaSalle has found that private investors are increasingly choosing to invest their funds in commercial property.

The report also reveals that commercial property returns have outperformed equities and gilts over 2006.

Commercial property proved to be the best performing asset class in 2006 with total returns of 18.1% according to the Investment Property Databank monthly index, significantly above equities at 16.8% and gilts at minus 0.1%.

The real estate money management and services firm says the dominant market place for the private investor is the national auction rooms with a record 2bn of stock sold through the leading auction firms last year.

And retail stock was the asset of choice accounting for 66% of all investment sales.

Richards Auterac, joint head of auctions at Jones Lang LaSalle, says: We all know how investors have been snapping up residential property but figures confirm private investors are casting their net wider and are going for the long-term benefits of commercial property.

It is not unusual now to see private investors with 10m to spend with a view to partly securing their pension portfolios through commercial property ownership.

There are high levels of cash available for investment especially from overseas sources, syndication and entrepreneurs owning successful non-property businesses.

The report states that strong investor demand continued to maintain downward pressure on yields and average prime yield now stands at a record low of 4.49%.

However, it says that even at these yields commercial property is still very attractive when compared with equities as the FTSE All-Share dividend yield currently stands at 2.9%.

Auterac adds: Investors are seeing the long term fundamentals, namely continued economic growth and high employment that underpins commercial property remaining strong.

The diversification benefits of property and still relatively high yields will keep commercial property on the radar for investors and IFAs notwithstanding the recent rise in interest rates.


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