CB Richard Ellis (CBRE) has put forward a compelling case for commercial property investment in its latest report Time to Overweight Real Estate - The case for property in 2012. One of the main arguments in favour of putting money into the sector is the income stability, even in periods of economic uncertainty. Michael Haddock, senior director of Europe, the Middle East and Africa research and consulting at the firm, explained "real estate performs under multiple scenarios, making a strong case for investors to overweight property at this time".
The firm highlighted the income-generating potential of buildings that are let out, as well as the fact investors will own a physical asset, commenting: "Even in the most extreme cases it is unlikely that an investor would experience a total loss". The report cited the collapse of Lehman Brothers as a case in point, noting the former owners of the investment bank's UK headquarters received the majority of the rent from the administrators while it arranged the transfer of the firm's operations to Nomura. In addition, the sub-tenants in the building continued to pay their rent throughout this process, while the complex was eventually sold for GBP 495 million. By contrast, bondholders and shareholders in Lehman Brothers are not expected to receive a substantial return on their investment.
According to CBRE, this example demonstrates the advantages of investing in commercial property, as opposed to other asset classes. There is further evidence the real estate market is a sensible option at present. Figures released earlier this month by the organisation showed returns on commercial property in the UK were up by 0.1 per cent in April, compared to March. London remains the main area of focus, with GBP 3.7 billion transacted in the first quarter of 2012. Nick Park, senior analyst of economics and forecasting at the firm, explained the Jubilee celebrations and Olympic Games may result in a slowdown in deals over the summer, but expects this to pick up in the autumn. "The end of this investment hiatus, coupled with the fact that we continue to see a healthy weight of capital allocated to UK property, could spell the turning point of this current weak period," he asserted.
- Monday 28 May 2012