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
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.