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Commercial Property

Commercial property market an untapped gem for retail investors

Chris Morcom
Partner/Private Client Adviser
22 Mar 2011

Retail investors should look beyond the comfort zone of residential property and take advantage of the solid income yields currently on offer in the commercial property market, an Australian wealth adviser warns.

Chris Morcom, Director and Private Client Adviser at Hewison Private Wealth, said as white collar employment picks up and business confidence rises, the commercial property market has recovered from the doldrums that followed the global financial crisis.

“Commercial office property is again being considered as a quality investment, but retail investors have been slow to get in on the action,” Mr Morcom said.

“A person’s single largest asset – outside superannuation – is usually their house, so when it comes to property investment, they immediately think of buying another house – it’s in the comfort zone. But with rental yields for quality commercial property now as high as 8% per annum, compared with the 2-3% yields being experienced in residential property, it’s a good time for investors to add commercial property to their portfolios.

“Commercial property has been overlooked since the global financial crisis when workforce cuts freed up office space and valuations of buildings fell.

“Now, we expect to see demand for office space grow and institutional investors are already capitalising on the double-digit rental growth expected to come through in central business districts around Australia, and there’s no reason why retail investors can’t follow suit,” he said.

The sheer scale of commercial property investments has traditionally restricted retail investors from accessing the market, but Hewison recommends four vehicles that make it possible for individuals to add commercial property to their portfolios.

These include:

1. Syndicated funds: By pooling multiple investors together, this strategy can provide individuals with the ability to buy high quality commercial property. Typically syndications have fewer than 20 investors, and each syndicate purchases an individual property.

2. Listed Property Trusts (LPTs): These provide investors with access to commercial property at what seems to be reasonable value. They operate much like a managed fund however acts more like a share than a property. Because it trades like a share, it is easier to exit, as you can sell it on the market.

3. Unlisted property funds: While these funds provide a wide variety of choice, they are a fairly illiquid vehicle – meaning you have to wait until the property is sold to exit.

4. Self Managed Super funds: investors can access commercial property through their self managed super fund thanks to legislation that makes this possible. For instance, Morcom says one of the best strategies is to use your SMSF to buy your own business premises if you’re confident in the future of your business.

“As with any investment, there are risks, and diversification is paramount in order to spread the risk,” Mr Morcom said.

“If you are looking to increase your property exposure, it’s important to get advice on the key factors that determine the quality of a property, such as an assessment of the economic environment; interest rates; whether the property has been reasonably valued (not overvalued); whether the rental yield is attractive; quality of tenants; and whether it has a long lease to ensure long term security,” he said.

Download article Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.