Commercial property investors should be able to look forward to a similar year to 2016 - only without the "hiccups along the way" - believes Columbia Threadneedle Property Investments managing director Don Jordison.
Jordan was speaking to Professional Adviser editor Julian Marr in this PA webinar, in which they and Square Mile senior investment research analyst John Monaghan discuss the sector's outlook over the coming year and also why advisers should be considering the asset class for their clients' portfolios.
Looking ahead to 2017, Jordison envisages a similar picture to commercial property's initial outlook for 2016 - and thus without the "hiccups along the way" that included a surprise increase in stamp duty and a surge in redemptions in the middle of the year that led to some funds suspending trading.
"You had some people weirdly selling at 15% to 20% below value and that did rub off on the market and took another 4% off values," he says. "But that balance is still there and I'm feeling very much as I did a year ago - it's a 6% [income] year until something horrible happens that we weren't expecting."
Building on his point, Jordison explains there is always a consistent argument for commercial property, arguing it is essential to have around 10% in a portfolio to "top and tail" other markets.
He continues: "It's a high-yielding asset category where the majority of returns always come in the form of income - it's not a capital proposition, it's an income proposition - and it's a compounding investment that's neutrally correlated with other asset categories. Over the medium to long term it's a good hedge against inflation."
Jordison also warns about overweighting property in portfolios, however, and describes those who used to have portfolios with 80-90% invested in the asset class as "just plain wrong".
"You really need the benefits of diversification to get the best from the compounding effect and you need to diversify away the specific risks," he says.
Commercial property largely struggled in the wake of the EU referendum on 23 June with some funds forced to suspend trading after they suffered high volumes of redemptions.
Arguing the biggest lesson learnt after the vote is that it is difficult to predict human sentiment, Monaghan suggests the poor performance could have been due to a "snowballing effect".
"The greater concentration of people selecting funds probably had an impact," he explains. "The asset allocation models may have changed to reduce property - and then a sort of snowballing effect compounded the problem."
Jordison, meanwhile, highlights the price volatility that existed even before the referendum took place. "Brexit only reinforced what investors should already know - commercial property is illiquid. It takes time to buy and sell - we're probably talking weeks not days - and it has high transaction costs.
"Arguably the sector's performance was more to do with the swinging of prices in April and May, which made people nervous about the sector, rather than the referendum."
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