Commercial property sector is now offering good yields as well as good valuations, says SLI’s Andrew Milligan
Commercial property is now offering better long-term yields than corporate bonds, according to Standard Life Investments.
Head of global strategy Andrew Milligan says the sector is offering good valuations as well as good returns.
“If you think about any of the asset classes that have some value, property is noticeably higher by any standard. I think most people would argue the valuation of the property market is still attractive on a long-term basis,” he says.
“The trigger I am looking for is not a rise in prices but a rise in transactions.
“We are not looking for amazing returns from property compared to what they were historically. But if we are talking returns of 20%-25% over a three-year period versus cash or corporate bonds, then I am very happy.”
Last year, £ Corporate Bond was the bestselling sector generating net sales of £7.9bn, according to the IMA. However, property saw a resurgence of demand in Q4 and was the bestselling sector in October and November.
SLI head of mutual fund and life-fund investments Jacqueline Kerr warns large capital inflows may impact the sector’s short-term performance. However, she believes it will perform well over a longer period.
“Cash coming into quality property funds could be a drag on performance, but I think it will be a short-term feature as better-quality property comes up for sale,” she says.
“Prior to the crisis, there was misallocation into property by some investors who were looking for short-term returns. Investors need to allocate with a multi-term view of between five to 10 years.”
