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Julian Gibbs

Over the next five years, most analysts expect commercial property to show

gross returns in excess of 10 per cent a year. This is made up of yields of

around 7 per cent plus rental growth of 3 to 4 per centa year. This should

equate to a return of around 7.5 per cent a year net of charges and taxes

for a well managed property bond or property unit trust.

This return should be about the same as that on the best with-profits

bonds but with slightly lower risk.

Some sectors of the property market are weak. Much of the retail sector

should be avoided but, on the other hand, office rents in East London and

some regional centres should continue to rise by more than inflation.

Retail warehousing is another attractive investment in some areas.

Over the past five years, property bonds have outperformed most other

investment bonds. They have risen by 7.5 per cent a year on average whereas

UK all companies funds have risen by 7.2 per cent a year, balanced managed

by 5.8 per cent and global equities by 4.4 per cent.

While equities over the longer term should outperform commercial property,

I believe the outlook for equities, except for those managed by the top

managers, is cloudy over the next three to five years. Commercial property

bonds or unit trusts are a safer investment for the elderly and for

risk-averse investors.

The property bonds I like best are issued by Scottish Widows, Allied

Dunbar and Norwich Union, while my favourite property unit trusts are from

Norwich Union and Portfolio.

Portfolio, in particular, has shown an excellent performance over the last

two years and I believe that this outperformance is likely to continue.

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