medium term returns to match equities but at lower risk, according to la salle
Property is offering returns comparable to equities but with lower risk, according to property specialist LaSalle Investment Management.
The group said over the last five years to December, annualised returns from the direct property IPD index were 12.7%, compared with 13.7% for the FTSE All-Share. Direct property investment has also outperformed the All-Share over one and three years, with the IPD up 12.2% on an annualised basis over three years compared to 9.8% for the All-Share. Over one year, the IPD is up 10.4% while the All-Share is down 5.9%.
Jeff Jacobson, chief executive officer, Europe at LaSalle Investment Management, said: 'Property had been out of favour since the overpriced 1980s, although investors began to return as equities ended their long bull run.
'Prospective returns for property over the medium term are comparable with equities and at lower risk. Most people think that the equity bull run is over, the asset class is going to be more volatile and they are looking for something steady. Property offers effective diversification from equities and bonds and the focus on income from property is an advantage in uncertain times.' Malcolm Naish, managing director UK at LaSalle, said 20 years ago the UK life and pensions industry had about a quarter of its total assets in property, while pension funds typically had around 15%.
For both, this had fallen to around 5% by 1999 on the back of the property crash in the 1980s, although Naish said LaSalle's clients, which include pension funds, typically have around 10% of their portfolios in property at present.
Robin Goodchild, European director of research and strategy at LaSalle, believes the UK property market is unlikely to see a big fall in capital values in the near term. He said: 'We are very much still in the equilibrium phase. We have not had a boom so we are not going to have a bust. We will probably not see real capital or rental growth but we will also not see 10%-15% capital losses either.'
Goodchild added that an important theme in the commercial property market is weaker occupier demand for offices, especially in the West End of London and M25 West. However, he said retailer demand is being sustained by consumer spending although out-of-town retail warehouses are outperforming in-town units and large units are outperforming smaller ones.
He sees shopping centres as likely to outperform next year as retail property tends to do less badly in a downturn. He also believes City of London offices will do well as these have not seen such a great rise in rents as the West End has and there is greater depth of demand.
In terms of managing property portfolios, Goodchild said LaSalle's strategy will include focusing on income, making sure tenants pay their rent and if tenants get into to difficulties, the group's aim is to look to come to an arrangement with them rather than forcing the vacation of a property that is likely to remain empty. The group is also looking to plan for, and seek, opportunities from an anticipated recovery in 2003/4.
Goodchild said: 'In 2002, we are going to see a business cycle downturn, not a property cycle bust. Construction levels are modest but vacancy levels are set to rise and there will be negligible rental growth. There may even be rental falls but this will be marginal.'
More than £167,000 raised
Beware ‘temporary’ vulnerability
Partner Insight: A renewed focus on 'knowledge-intensive' companies should help investors realise that these entrepreneurial companies are found in sectors other than biotech or technology.
Celtic WM and Active Wealth