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Commercial Property Investment - An Introduction

Commercial Property Investment - An Introduction

This is the first of three special articles on investing in property by Wesleyan's own Property Fund Manager Joe Curlett.

Joe Curlett_colJoe Curlett
Joe Curlett is responsible for all aspects of the Society’s commercial property investment holdings, maintaining a portfolio located throughout the whole of the UK with support from a team of Asset and Property Managers.Joe is a Chartered Surveyor by profession and holds a degree in Estate Management and has previously worked as an Asset Manager for a UK property company and for several property consultants, providing advice to landlords.

What is commercial property investment?

Commercial property is one of the four main asset classes alongside equities (shares), fixed interest and cash.

Commercial property investment, or commercial real estate investment, is based around the principle of owning and providing business premises to commercial tenants in return for the payment of rent. 

The sector itself comprises three principal sub sectors; 'retail' and 'office' being the largest sectors, as well as 'industrial'.  A fourth sub sector is rapidly becoming more institutionally acceptable for investment and this is the 'alternative sector' comprising everything from private rented housing, hotels, healthcare surgeries, motor trade, petrol filling stations to pubs and restaurants.

Investment in the sector totals nearly £500bn* in the UK alone and unsurprisingly around half of that value resides in Central London. 

Traditionally much of this property was owned by Central & Local Government and wealthy individuals, but ownership has gradually transferred to both domestic and international institutions, private equity houses and sovereign wealth investors.

Income returns from commercial property investment

As an asset class, commercial property has historically provided a relatively stable income return from rental income  as well as some capital appreciation over the long term. 

The rental income and capital return taken together have the potential to offer relatively high total returns (in today's low return environment) and whilst property has behaved very differently to other asset classes over the years the average total return stands at around 7% per annum over the last 25 years, similar to that of equities and bonds.

*Source: Estates Gazette Article 6 August 2016

Commercial Property Investment Graph

Past performance is not a reliable guide to future performance and the value of your investment and any income can go down as well as up, so you could get back less than you invested.

Rent is normally contractually committed via lease agreements for periods of three to ten years and whilst variable in nature has an element of fixed income attraction. As the supply of similar property and demand from occupiers alter for each asset, so the estimated rental value of that asset changes.

For example, the prospect of rental growth can push capital values up and the threat of rental decline can reduce capital values.

Our approach to property investment

At Wesleyan we utilise commercial property as a form of investment to generate returns for our customers (as well as investing via funds and shares in indirect real estate companies).

We approach investment into commercial property in line with our wider investment beliefs, principally, for the long term, to provide diversification, in a contra cyclical fashion and placing importance on income.

Relative to other asset classes these investments require a high degree of active management and Wesleyan's team of Chartered Surveyors have a key focus around refining the portfolio to maximise returns, keeping vacant units to a minimum, managing rental income and ensuring services are delivered to properties where there is an obligation to do so. 

Wesleyan spreads its investment across all commercial property sub-sectors (mentioned above).  A broad knowledge and skill base is required to administer the running of a diverse portfolio containing tenants from a range of business sectors. 

Choosing the correct premises from which to operate can be one of the biggest decisions a business has to make and getting to know businesses and business sectors is a vital part of our Surveyors' job - requiring regular collaboration with our wider investments team.

Let us help you to understand your investment options

Let us help you to identify which investment options are right for your individual circumstances by booking a no-obligation appointment with your local Wesleyan Financial Consultant.

They are specially trained to understand the unique financial circumstances of professionals like you, and can meet at a time and place convenient to you.

Email: Telephone: 0800 975 4970 (please quote reference number: 80669.)

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