Your investments: Pay day beckons at the factory gates

Your investments: Pay day beckons at the factory gates

'We've never had it so good' was the title of a conference presentation about the performance of property last year by Mark Callender, research director of the Investment Property Databank. It is easy to see why he was so exuberant: last year was the best for commercial property since 1993, comfortably beating shares, bonds and cash. Over three, five and 10 years, the offices, shops, and industrial sheds that make up a typical commercial portfolio outperformed other classes of investment. Small wonder, then, that both retail and professional investors are showing greater interest. And small wonder that fund managers such as F&C and Thames River are launching funds to tap into this demand.

The F&C trust is seeking £1.1 billion, making it one of the biggest investment trust launches ever in the UK.

But Callender's comments may also set alarm bells ringing for the contrarians among us. Retail investors have a nasty habit of piling into the latest fad just as it goes sour - the technology boom in the late 1990s being the worst example.

So can property continue its good run or did last year mark the end of the glory years? Property investment can certainly go hopelessly wrong. The market col lapsed in the early 1990s, leaving investors nursing huge losses and pushing many property companies into receivership. But, the experts say, that crash and the 1970s slump before it were caused by the combination of a surge in speculative development.....continued below

Advertisement starts

---

---

Advertisement ends

and a downturn in the economy. That created too many office blocks, too few tenants and falling rents. Because property is valued on the basis of rental income, that sent capital values plunging, too.

This time around, however, there has been little speculative development. And while there are more empty City offices than the industry would like, elsewhere demand for space remains reasonable.

There is also healthy demand from investors. Pension funds, in particular, have been heavy buyers of property, not just because the returns have been much better than shares, but also because gaping deficits and new regulatory rules make it a more attractive investment to hold. With deficits unlikely to disappear for some years yet, that demand is likely to continue.

John Cartwright, who runs M&G's property fund, does not expect a repeat of last year's stellar performance but predicts a gradual return to more normal returns. Rob Page of New Star, which has a property unit trust, says one of the key attractions of property is that its returns are not linked to the stock market, making it an ideal way to reduce risk by diversification. 'You do not want to have all your eggs in one basket, as people did in the stock market in the late 1990s.'