A special report on property
Commercial property has bounced back, but only in the best locations
IN SOME corners of the commercial-property market a slight whiff of self-congratulation is in the air. Doom-laden warnings issued in 2008 and early 2009 that commercial real estate would be the “next shoe to drop” have not come to pass. Opportunistic investors hoping to cash in on the sale of distressed assets have been largely disappointed. Governments have intervened less than they have in housing (there are fewer votes in office buildings and shopping centres). “Commercial real estate was not at the heart of the crisis,” says a big fund manager in Germany.
Investors’ interest in the asset class is growing, thanks in large part to the extreme macroeconomic environment. Near-zero interest rates make the yields on offer from property look attractive. The cashflow from tenants is more stable than that from equities, where values zigzag day by day and dividends can suddenly be suspended by the management. And unlike many types of bonds, property is seen as a useful hedge against inflation because rental agreements can be renegotiated with tenants to reflect rising prices. Bulls note that Norway’s $543 billion state pension fund, one of the world’s largest sovereign-wealth funds, is starting to allocate money to property. It made its first real-estate investment in January, spending ￡452m ($723m) on properties in London’s Regent Street.