Propert as an Investment

In the past, most charities' investment portfolios have consisted mainly of equities and bonds, but in today's volatile economic environment it has never been more important for charities to hold a diversified portfolio of investments. One of the best performing asset classes over the past three, five and ten years has been commercial property, which can help add an extra element of diversification and stability to investment portfolios for several reasons.

First, commercial property has historically been a less volatile investment than equities or bonds, providing a steady income of around 7 per cent per annum. This is largely attributable to the fact that in recent years, up to 80 per cent of the total return (income and capital) has been derived from rental income.

The income is also relatively predictable because standard institutional leases are secured for up to 25 years with upward only rent reviews every five years. Even in times of economic uncertainty when companies may issue profit warnings and suspend dividend payments they should still be paying their rent, which tends to be a prior charge payable quarterly in advance.

Second, commercial property is less sensitive to economic cycles, often producing its best performance when returns from other asset classes are suffering. The current outlook for property remains positive with experts predicting total returns of around 9 per cent per annum over the next five years.

Finally, unlike other investment classes, property represents a tangible, real asset. Therefore, instead of simply being restricted to buying and selling, investors can improve returns through active management of their investments. This can include, for example, refurbishment and extension of a property or a change of planning use to a higher value use. It might also include taking a surrender of a unit in a multi-let property in order to secure a new letting at a higher rent thus creating rent review evidence for the other units.