Commercial property took a similar post-Q2 2007 fall, with the additional kicker of the demise of the banks who were the prime lender to commercial property owners.
This is a peek into the future as well as well as according to some, commercial property values are expected to fall dramatically into 2017 while others, including Capital Economics, say: “This is unlikely unless we have significantly underestimated inflation pressures in the economy and, as a result, interest rates rise far faster than currently seems likely.”
The former view was echoed in a Daily Telegraph headline last week that read: ‘UK commercial property is heading for a fall’. Added to this argument is the share price of the two largest commercial property developers falling hard over the past year, with those for British Land and Land Securities both dropping by 25% during the course of the past 12 months. They have picked up more recently.
The macro backdrop to property is not helped by the bigger picture of low interest rates, UK political uncertainty and a weak economy.
The positives for property are income-related right now with the best-performing property funds, besides being investors in bricks and mortar, all successfully seeking out income.
Fiona Rowley, manager of the M&G Property Portfolio recently told Portfolio Adviser: “When you look at data on the make-up of returns from property it shows that 70% to 75% come from the income element, so my approach is always to buy assets that will deliver that long-term income.”
