January 2009 Market Update - Property
When we refer to property we refer to commercial not residential. We have all followed the recent woes relating to residential property market, but the fundamentals affecting commercial property are less well publicised. Following significant declines, commercial property prices probably represent good value. The rental yields of around 7.5%, when compared to the returns on cash, seem to give us a decent return while we wait for prices to recover. However, it is important to select a fund, to offer a diverse exposure to many properties, and one with an experienced manager, who is able to assess the quality of the asset and tenant base. While headline rental yields seem attractive these are no good if all your tenants are Woolworths! This last point is used to emphasise the point about using managers who know the market. While we have not allocated new money to the market in 2008, we may well revisit should we start to see a pickup in prices.
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