Isis Asset Management has created a second Isis property trust, a Guernsey-based closed-ended fund which aims for income and growth by investing in a portfolio of UK commercial property.
The fund will initially invest in a portfolio of 38 freehold and leasehold properties that Isis has managed for the last three years and has a target yield of 6.75 per cent a year
The properties within the portfolio are span the retail, office, industrial & warehousing sectors, covering areas such as Birmingham, Essex, London, Newcastle and York. Isis expects the UK economy to grow by 3 per cent this year which is believes will strengthen demand for commercial properties and increase rental growth.
Most of the leasehold properties - 35.9 per cent of the portfolio - have between 15 and 25 years left to run while 45 per cent have unexpired leases of between five and 15 years. The longer the lease, the more likely it is that void periods can be kept to a minimum as there is time to renegotiate leases or find new tenants.
The UK commercial property market has performed well over the last decade and is often used as a way to diversify an investment portfolio because of its low correlation to other asset classes. Commercial property tends to be less volatile than the residential market because it is driven by the wider economy rather than sentiment and income streams are easier to predict because of the long-term nature of tenancies.
This fund is similar to Standard Life's property income trust, but the rival fund has a higher weighting in the office sector as SLI is seeing a recovery in the office market with the retail sector slowing down. If this turns out to be the case, the Isis portfolio, which has just 23 per cent office exposure, may miss out on opportunities in this sub-sector.