Commercial property funds tipped to provide 25% return over three years

Written by Ray Clancy

Wednesday, 10 March 2010 09:10

Commercial property could provide investors with a handsome 25% return over three years, it is claimed.

According to Scottish investment firm Standard Life Investments building a diverse portfolio stretching across the globe could produce significant returns relative to the likes of corporate bonds.

In its latest quarterly briefing, SLI said capital was beginning to flow back into the world’s prime bricks and mortar sites, despite pressures on rents and the overhang of properties held by commercial banks.

Andrew Milligan, SLI head of global strategy, said despite the risk of a double dip recession careful investment in the asset class could trigger a noticeable spike in profits.

Milligan said putting money into the world’s fragile property sector could secure investors a slice of Europe’s increasingly lucrative market and profit from an improvement in sentiment.

The strategist added that while there were perhaps some pitfalls linked to property, mainly within the asset backed securities market, he was encouraged by the inflows into the asset class.

‘The good thing about commercial property nowadays compared to 10 years ago is that now investors can get access to a global property portfolio. Our forecast over the next three years is 20 to 25% returns from property, which is largely through the yield, some 20% to 25% over three years versus returns over cash and corporate bonds,’ he explained.

A huge number of commercial property funds are being launched currently on a global basis. Blumberg Capital Partners, a leading US based investment firm, has launched a $1billion commercial real estate fund to capitalise on distressed properties in the US, the Gulf and Brazil.

‘We’re seeing very significant interest from the Gulf region in particular. We have both interest and some commitments from institutional and individual investors. The commitments, both soft and hard, are in excess of $100 million,’ said chief executive and founder Philip Blumberg

There are also an increasing number of funds investing in residential property. Hamptons International is one of the latest to launch new funds investing in UK residential property.

It has joined forces with Consortium Investment Management to launch Nanofunds, a series of small residential property funds focusing solely on investment opportunities in London and the South East and it its first foray into the property fund market and comprises a two year development fund and a five year growth fund.

Figures published earlier this week by the Investment Management Association showed that in January property funds were the biggest seller for the fourth consecutive months in a row.