Last week, the Bank of England predicted Britain's property boom was past its peak and that annual house price inflation would fall from its current 25 per cent to zero over the next two years. Indeed many economists forecast that prices could actually fall in this period.
Last week, the Bank of England predicted Britain's property boom was past its peak and that annual house price inflation would fall from its current 25 per cent to zero over the next two years. Indeed many economists forecast that prices could actually fall in this period.
However, Charles Mesquita, charities specialist at Carr Sheppards Crosthwaite, says: "It is important for charity investors to understand that commercial property operates under a completely different set of parameters from the residential arena. The commercial property market remains an attractive investment for many charities and can be a useful way of diversifying an investment portfolio."
Over the past decade, residential assets have risen an average of 121 per cent, according to the Nationwide Building Society. Over the same period, commercial property has risen just 32 per cent, according to Investment Property Databank (IPD).
"The gains in the residential sector have been inflated over recent years. This has been fuelled by the dramatic fall in mortgage costs and greater demand from the buy-to-let market particularly in London and the Home Counties," says Mr Mesquita. "In contrast, the gains demonstrated in the commercial sector are likely to be much more sustainable."
Most property commentators are forecasting total returns from commercial property of between 6 and 8 per cent per annum over the next five years.
"One of the principal attractions of an investment in commercial property is the rental income stream, because of both its magnitude and its stability," points out Mr Mesquita. Institutional leases can run for 25 years or more and they are subject to upward-only rent reviews, which usually occur every five years. This gives predictability and comfort to investors.
In addition, leaseholders of commercial property have to pay their rent quarterly in advance. Even with the threat of forthcoming economic uncertainty, the organisations that lease premises should continue to pay their rent unless they go bankrupt. "It would take a protracted recession, such as that in the 1930s, to have a significant impact on current rental flows," points out Mr Mesquita. "The Charities Property Fund only invests in properties where the tenants are considered to be soundly-run organisations."
Alison Puhar, director of Savills Fund Management, says: "In the commercial property sector there is currently market weakness in central London offices and along the M3 and M4 corridors. Nevertheless, the provincial office market and the industrial and retail sectors are exhibiting much more satisfactory conditions at present. As a result, The Charities Property Fund is maintaining its bias towards the industrial and retail warehouse sectors to give the best possible returns to our investors."