Unlike the faltering residential market, commercial property continues to exhibit characteristics that make it a useful inclusion in many clients' portfolios.
There are three main reasons why it is important to invest in commercial property nowadays. Firstly, commercial property is uncorrelated to either equities or bonds and the addition of it as an asset class can help create a diversified portfolio for many types of investors. Secondly, it provides investors with a stable, diversified total return comprising elements of both capital and income growth and has performed very well when compared to equities or bonds. Finally, the returns from commercial property are delivered with much lower volatility than equities or bonds. Compared even to gilts, traditionally perceived as a very low risk investment, the volatility of returns from commercial property is far lower.
So, what is key to success in this sector? John Cartwright, Head of Retail and Institutional Funds at Prudential Property Investment Managers Limited (PruPIM) believes that size and scale is crucial. “Commercial property comes in pretty sizeable chunks so you need to be a serious player to get in at the ground floor. Being one of the largest property managers in the UK (with over £17bn of property assets under management) means we get offered many off-market deals that aren’t available to other fund investors” he says.
Commercial property is complex and requires expert judgement. So, having resource and experience in this arena is fundamental to success. Cartwright believes that one of the things that makes the M&G Property Portfolio unique is the property managers – PruPIM. “We have been managing property for over 140 years, which is longer than anyone else in the UK” he says.
Finding value in commercial property is becoming increasingly more difficult nowadays, so doing your homework can make a huge difference. Research teams can provide in-depth analysis and accurate forecasts. The team at PruPIM comprises researchers and surveyors who dedicate their time to analysing market themes and trends as well as individual properties. In this way, they can predict future potential in a specific area of the market and then pinpoint exactly where the best opportunities lie.
Our approach to Property
The M&G Property Portfolio is a UK authorised unit trust that can invest up to 100% in commercial property. This means that it is unlikely to invest in property shares or convertibles, which can often be volatile. The Fund seeks to be fully diversified across sectors (retail, offices and industrial) and across geographical regions. However, the Fund Manager can take smaller or larger sector and /or geographical bets according to where he sees the most value. Now available in an ISA, the Portfolio offers daily dealing and quarterly distributions. As at the end of February 2006, the Fund size was £498m.
The outlook for 2006
So, what’s the outlook for the market? We witnessed some extraordinary returns from commercial property throughout the past few years and the market was understandably whipped into a frenzy. Cartwright believes that the market will come back down to earth over the next 12 months delivering more sustainable, healthy returns in keeping with the long run average of around 8%. It is worth mentioning that because certain parts of the market are quite expensive, doing your homework and picking the right assets is more important than ever.
To request an information pack or to listen to John Cartwright provide an update on the commercial property market, visit www.mandg.co.uk/ifa
M&G Property Portfolio – in brief
• Authorised UK Unit Trust
• Invests 100% in commercial property
• Offers daily dealing and quarterly distributions
• Portfolio size - £498m
• Managed by John Cartwright who has over 30 years experience in property investment
For financial advisers only. Not for onward distribution. No other persons should rely on the information contained in this article. Portfolio size as at 28 February 2006. Property valuations are subjective and may vary. Property is a specialist sector. Issued by M&G Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The company’s registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No. 90776. 17900 MAR 06
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till