Yield-hungry investors look to property

For an asset class that forms the basis of a cliché about safety, property’s decline amid the credit crunch has soured many investors on the sector.

A 45% peak to trough drop from 2007 to 2009 will do that, but with the sector long known for its income profile, many yield-hungry investors are taking another look.

Advocates are now highlighting property’s return to its long-term role as a source of income, particularly with Western government bonds at 300-year lows.

Ignis UK Property manager George Shaw, for example, says income has been the key driver of the sector’s returns over the last 12 months and will remain so in the future, in stark contrast to the massive capital gains available during the early Noughties boom.

With income integral to performance, Shaw says property is a unique asset class because it is possible for investors to influence and enhance this key return stream.

‘Our strategy involves managing income through measures including rent reviews, lease restructuring and physical improvement to our holdings such as refurbishment,’ he says.

‘We continue to see income as the core driver of property returns, and asset management initiatives such as handling lease expiries and maintaining lower vacancy levels are therefore at the heart of our approach.’

As an example of how Ignis has managed its assets, Shaw highlights steps the group took to improve yields on its Ellenborough House property in Cheltenham. ‘Following a refurbishment programme throughout 2011, we were able to restructure our lease with long-term tenant Rickerbys Solicitors for 60% of the accommodation with a 15-year deal,’ he adds.

‘We have also found new tenants for the residue of the property, which is now 85% let. This refurbing, re-gearing and attracting new tenants is the kind of proactive management that can enhance our income stream.’

Since the downturn in the property sector began in 2006, Shaw says the asset class has returned to its long-term return profile, swapping massive fluctuations in capital value and
tracking equities for solid yield and steady growth.