Why You Might Want To Consider Investing In Commercial Property
The goal of investing is not only to make money in boom periods but to limit your losses during the difficult times; choosing to invest in commercial property is likely to help you do exactly that.
Nothing is ever guaranteed when it comes to finance, but if you want to have a more secure high-performing investment portfolio, it will benefit from diversity. We’ve discussed the importance of a diverse portfolio in previous blogs (such as How Do We Invest Your Money So You Don’t Lose It All?). In this blog, we’re going to explore why investing in commercial property could be worth considering.
What do we mean by commercial property?
Commercial property investments are a slower moving asset class, which means the rewards might be incremental; but they’re often also a safer bet, which means there’s less risk of you losing all your money overnight.
The average portfolio, if it has the support of an independent financial adviser, is likely to include a property fund. However, it’s rare for people who make the investments themselves to choose “commercial property”, because it doesn’t immediately compare well to equities.
In rising markets, equities have the potential to do very well; but while they tend to go up four out of five years, the one year in which they dip could cause financial struggle. If your investment portfolio is not diverse, you won’t benefit from some protection against this.
How well did commercial property perform over the last 18 months?
Over the last 18 months, commercial property investments achieved double-digit returns. The latter part of 2021 was more stagnant in terms of equities, but from January to March 2022 everything lost value, with the exception of commercial property funds (see the illustration below).
At Applewood Independent the funds that we run are up by nearly 2% this year, and over the period of a full year they’re up by 17.5%.
Image courtesy of Trustnet.
Is this a strong indicator of performance?
For the first part of 2021, commercial property funds were not performing as well as the equities but they continued to rise incrementally. In a falling portfolio where all other assets have lost money (unless you invested in gold!), commercial property funds such as BMO Property continue to provide a degree of investment stability.
For example, this fund has a building (of many) that it owns and rents out and it has a tenant who pays the rent and 17 years remaining on the lease. Even if the world is on fire, this type of investment is considered “business as usual”. Although it’s tempting for investors to create a portfolio that is geared towards outright performance, it’s likely to offer less protection than a diverse portfolio that includes commercial property.
When is commercial property likely to be a sound investment?
Although the performance of commercial property is unlikely to illuminate the sky with fireworks, it’s in turbulent times – such as during the pandemic or the tragic war in Ukraine – that they come into their own and show their true value in terms of offering a degree of financial stability.
If as an investor your sole aim was to make money as quickly as possible, you might decide to put all your money in one fund, or go to the casino (but that would be a big gamble!). As independent financial advisers, we help you to make decisions that support a sophisticated and diverse portfolio, and one that is more likely to carry you through boom and bust periods.
How do we choose where to invest?
We use our experience, expertise and information gained from meetings with the manager of BMO Real Estate Partners, Guy Glover (with whom we’ve established a working relationship), to help clients gain the benefits of diversification. He runs a cautious fund and loves to find true value in bricks and mortar. We’ve seen the benefit of these investments time and time again, and in particular how they play out in falling markets as well as how they perform in growing markets.
Many property funds struggled during lockdown because it was challenging to place a value on them; no one was certain what the post-pandemic world would look like. However, there’s plenty of evidence to confirm that if you want a high-performing investment portfolio, it’s wise to consider commercial property.
Either way, it’s essential to create a diverse portfolio so that you make money in boom periods and protect your hard-earned cash by losing as little as possible in more challenging times.
I hope you’ve found our explanation useful as to why we find commercial property worth considering as part of our balanced and diverse portfolios. If you’d value our independent financial advice when it comes to how to invest your hard-earned cash, please get in touch by emailing me at email@example.com, or David at firstname.lastname@example.org.
The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.
The value of your investment can go down as well as up, and you may not get back the full amount invested.
Past performance is not a guide to future performance.