Follow the funds out of commercial property

As funds begin to favour companies backed by property assets rather than property itself, it's time to rethink the commercial property sector.

Fund managers in the commercial property sector are beginning to get the jitters, and investors should take note. Managers at F&C's Commercial Property Trust (FCPT) have forecast an end to the rocketing capital appreciation that has pushed up returns in this once unloved asset class, while the Westbury Property Fund has said that it will begin investing in companies backed by a property asset principally ports rather than investing directly in commercial property. What's more, property tycoons Vincent and Robert Tchenguiz, reputedly worth more than £500m, are ridding themselves of their property empire.

Encouraged by past performance, investors' money has continued to flood into the sector. But although that's helped to push up commercial property prices, it's also pushed down yields, as rents have failed to rise in line with prices. As Jonathan Russell says in The Observer: "What landlords are receiving in rent may not cover the interest payments on the capital used to buy the buildings."

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Jody Clarke

Jody studied at the University of Limerick and was a senior writer for MoneyWeek. Jody is experienced in interviewing, for example digging into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.