Many commercial property investors have seen the value of their portfolios fall significantly over the past five years. Since the onset of the global economic crisis in 2007 investors have witnessed average falls of 11.4 per cent, while some have lost as much as 25 per cent. Consequently the Investment Property Databank Index dropped by 42 per cent between mid-2007 and mid-2009.
Because the property market is less fluid than the equities market, this situation proved difficult for both individual investors and the large funds. Individuals were stuck with properties generating little or no income while some major funds were forced to impose exit restrictions due to the tumbling value of their holdings.
Given that investors have had their fingers burned, many may be cautious about further investment in commercial property. However, the market is cyclical and with a bottoming out predicted this year, the time may be right to consider the opportunities that these unfavourable conditions have produced.
Bob Martin, a director at Legal and General Property, believes that commercial property is now “priced to perform.” Speaking to the Telegraph he explained that investments like equities have benefitted from the loose monetary policies adopted by the central banks and that commercial property could be next.
“UK commercial property prices fell in 2012. But there are a number of drivers, particularly the attractive valuations available in the sector, that make Legal and General Property more optimistic about returns in 2013 and beyond,” he said.
Andrew Milligan, of Standard Life agrees. This week he predicted better returns from property than shares, saying that property could be “the surprise profitable asset class of the decade.”
Despite the continuing fragile state of the economy, this optimistic outlook is echoed in the latest Market Flash report from IPD which shows that December’s round of auctions saw the greatest buyer demand of the year.
Success rates reached 81 per cent with post-auction sales pushing the figure towards 90 per cent. This level of demand is consistent with market conditions that we have not seen for some time and IPD predicts that 2013 will see increased activity as pricing expectations are adjusted and capital is recycled.
As investors see increasing evidence that the bottom of the cycle has been reached, the report continues, they will feel confident that property purchased at this stage will perform in terms of long term capital growth and rental value.
