Jul 7, 2020 | JONATHAN ELSIGOOD
What does the future hold for commercial property? Business owners, investors and employees alike might be wondering.
The landscape has changed significantly, but the important question is ‘what impact will this have on your investments?’ Will having commercial property as part of your diversified portfolio become a thing of the past? We highly doubt it; here’s why…
1. The flipside – commercial property isn’t just for employers and retail giants. It’s estimated that in a globally diversified REIT index fund (real estate investment trusts are listed property companies) such as the ones used in our portfolios, there’s exposure to around 90,000 properties. All of which are spread across numerous sectors as you can see in the diagram below. These sectors aren’t going to disappear overnight and for every retailer that may close, there’ll be a new company moving into or starting up online that requires logistic hubs, warehouses, data centres etc.
Source: FTSE EPRA Nareit Developed Index Factsheet www.research.ftserussell.com
2. There’s nothing new here – the retail sector has been changing for some time now. Thousands – or even millions – of people will have already acted on their view of what the future holds for the property market. This means all of the doom, gloom and uncertainty is reflected in the price of REITs already.
We wouldn’t abandon having a diversified portfolio just because some sectors are struggling such as airlines or energy companies. And we wouldn’t concentrate our portfolios into those sectors that are booming right now, like technology. Companies and sectors wax and wane.
3. Don’t forget why property is part of your portfolio in the first place – Property usually has a different return experience to equities which can provide diversification to a portfolio.
Over time property has also provided protection from inflation; after all, a property is a property and many rental agreements are linked to some measure of inflation. With the rapid increase in the money supply (due to the government support packages around the world) higher inflation is a future possibility.
As the saying goes ‘all things in moderation’. A small amount of exposure to global commercial property still makes sense for long-term investors as part of a diversified portfolio.
If you have any questions about your portfolio or commercial property just let us know.
Past performance can’t guarantee what investments will do in the future. The value of a portfolio can go down as well as up, so there’s a chance you’d get back less than you put in.