COMMERCIAL PROPERTY

Commercial Property

Table of Content

Introduction1

Discussion2

Property is a real, tangible asset4

Potential to enhance value5

Retail5

Offices6

Industrials7

Analysis8

Introduction

The UK has continued to expand in 2007, growing by 3.3% year-on-year. Economic strength remains driven by the services sector, in particular business services and finance which grew by 5.6% year-on-year. Although uncertainty remains in global financial markets, where “expectations are sensitive to further shocks”, according to the Bank of England, economic growth projections for 2008 are still only marginally below long-term trend. Buoyant consumer spending has been underpinned by robust retail sales growth of 3.8% in the three months to September 2007, compared to the same period one year earlier. The housing market has showed signs of cooling with mortgage approval numbers falling off, and Halifax reporting an 8.9% increase in house price growth over the 12 months to September, down from 11.2% three months earlier. (Anderson, Young, 2007, 12 )

In November, the Bank of England left interest rates untouched for the fourth month in succession. Consumer price inflation has remained around Government target since July 2007 and despite recent oil price rises presenting some near-term upside risk, medium term inflationary concerns have subsided. With inflation close to target and in light of the downward revisions to economic growth projections, financial markets are currently pricing in at least one 25bp cut in interest rates in the first half of 2008.

Discussion

The addition of commercial property to portfolios, whether conventional bond/equity or more diversified modern portfolios, would have consistently reduced risk and often enhanced returns during any of the more volatile periods in the last 40 years. Property's stable income streams and low correlation with the equity and bond markets are significant factors in reducing portfolio risk. The UK has continued to expand in 2007, growing by 3.3% year-on-year. Economic strength remains driven by the services sector, in particular business services and finance which grew by 5.6% year-on-year. (Anderson, Young, 2008, 12)

Although uncertainty remains in global financial markets, where “expectations are sensitive to further shocks”, according to the Bank of England, economic growth projections for 2008 are still only marginally below long-term trend. Buoyant consumer spending has been underpinned by robust retail sales growth of 3.8% in the three months to September 2007, compared to the same period one year earlier. The housing market has showed signs of cooling with mortgage approval numbers falling off, and Halifax reporting an 8.9% increase in house price growth over the 12 months to September, down from 11.2% three months earlier. In November, the Bank of England left interest rates untouched for the fourth month in succession. Consumer price inflation has remained around Government target since July 2007 and despite recent oil price rises presenting some near-term upside risk, medium term inflationary concerns have subsided. With inflation close to target and in light of the downward revisions to economic growth projections, financial markets are currently pricing in at least one 25bp cut in interest rates in the first half of 2008.

The third quarter of 2007 has seen a sharp correction ...