Strategic Commercial Property Investment for your Portfolio
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New Commercial Investment Opportunity| Commercial Property Liverpool |
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Commercial Property Investment - Should Commercial Property be part of your investment property portfolio?
The short answer is yes. One of the most widely accepted principles of investment is that diversification reduces your risk. There are a variety of reasons why any serious investors should consider commercial property as part of their overall investment portfolio. These include:
1. It's all about the income yield
While the yield generated by government bonds – gilts – has fallen markedly over the last 15 years, the yield from commercial property has remained surprisingly stable. In fact, property yields have been locked in a 5%-8% range for the last 10 years making commercial property a very solid return on investment.
With a system of regular rent reviews property yields can keep pace with inflation. The rent review process takes account of rents on similar properties. In addition where existing leases are being extended, upward only rent review provisions stop rents falling back to market levels on an extended lease where the rental market has dropped since the last lease renual. These sort of contractual provisions give the investor added protection and more security on the yields from their commercial property.
2. Diversification of your portfolio into commercial property lowers your risk
One of the most widely accepted principles of investment is that diversification reduces your risk. In the context of shares, this means that you should hold a broad spread of shares across the main market sectors rather than just a handful of shares. A range of holdings (as provided by a unit trust or OEIC for example) – will mean that if one company fails, you do not lose all your money and you have successfully diversified.
This is where diversification across investment classes plays an important role. An example: While UK shares (FTSE All Share Index Total Return) grew strongly in the latter part of 2004, they were falling for two and a half years from Autumn 2000. During this period of volatility, commercial property was averaging a 12.9% a year return (to end 2004). If you had a portfolio that included shares and commercial property, you would have fared a lot better than the investor who held only shares. Please bear in mind that past performance is not necessarily a guide to the future.
The market cycle for commercial property is not closely linked with that of bonds or shares. According to research by some of the leading investment banks, over the period 1970-2002 there was only a limited correlation between the performance of commercial property and that of UK shares. This makes commercial property a sensible investment for a sophisticated investor looking to spread risk across his/her portfolio. The point has not been lost on large institutional investors, who have increased their exposure to commercial property in the past few years.
Not only does BLACKSIGMA provide opportunities to buy commercial investment properties, we also offer access to practical and professional advice for those looking to invest in all types of property. Advice on buying residential and commercial investment properties is provided free of charge to our clients with no obligation to buy any of the developments we have sourced.
If you are a commercial property developer or commercial property owner and have a fantastic commercial property investment you think we might be interested in please contact us here >>