by Alex Catalano
The extremes of performance seen recently in the property market are likely to be accentuated in future, according to Healey & Baker’s investment report for March 1986.
Their latest figures for prime commercial property yields show them ranging from a low of 3.75% for town centre shops, through 5% for offices and 7% for hi-tech and retail warehouses, to a high of 7.5% for industrial and warehouse property. These yields, which have not moved since the end of 1985, are well below the return on long-dated gilts, 10.75%, and a base rate of 12.5%.
Nevertheless, Healey & Baker say they “expect that during 1986 many funds will be willing to put a greater percentage of their new money into property”. But they note a tendency to go for the higher rates of return associated with riskier or less-than-perfect investments.
Portfolio management is now “one of the most important skills of the property fund manager”, and the report points out that institutions disposed of £342m worth of property in the third quarter of 1985.
“The sales record the continuing intention of fund managers to realise those assets that are no longer perceived to be attractive and more recently there has been a tendency to take a ruthless attitude to price, selling at the best figure a campaign produces rather than retaining an asset in a market that may take considerable time to mature,” the report declares.
Healey & Baker also say the market is looking for increased liquidity, and that unitisation will be one of the major debating points for 1986.
Overall, the report sounds a cautious note. Investors are warned against being tempted into secondary shop locations at low yields or inflated rents and against funding retail warehouses at rental figures which are artificially inflated because of land scarcity.
