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View the article online at http://citywire.co.uk/wealth-manager/article/a646793

Yield-hungry investors look to property

by James Smith on Dec 27, 2012 at 07:00

‘When talking to clients, our line is that commercial property will produce steady positive total returns, made up primarily of around 6% annual income with some capital growth,’ he adds.

‘This year is providing difficult for all asset classes but we are confident in our focus on proactive income management income in a portfolio with stock over sector calls and a London bias.

‘Sentiment remains negative as the economy struggles and the impact 
of the eurozone crisis on asset prices including commercial property plays out. But the stability of prime rental income streams, the yields available compared with cash and safe haven government debt and the huge volatility in equity markets represents a strong case for prime/investment grade property in these turbulent times.’

Meanwhile, Don Jordison, managing director of Threadneedle Property Investments, says for an asset-backed, relatively low-volatility investment, property offers a very attractive level of income.

For Jordison, the bounceback from the worst depths of the 2007/08 crisis has run its course and the sector has returned to a more typical pattern.

‘Over the long term, income is by far the most important component of performance and is particularly appealing against a background of extremely low interest rates that look likely to remain that way for some time to come,’ he says.

‘While the investment case for commercial property may not hold the same excitement it commanded in the heady days of the rebound, observers anticipate reasonably good income returns for this year, making the asset class an attractive option in the current environment.’

Visible income

Like Shaw, Threadneedle says active management initiatives to generate capital and rental value gains will be key for property managers.

‘Rental agreements are signed on a long-term basis and this, together with the highly diversified rental stream in a well-managed fund, affords excellent income visibility,’ Jordison adds.

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