Essentially, this investment attempts to boost investor revenue from commercial bricks and mortar. We’re talking office blocks, retail outlets, warehousing and business parks, rather than housing. Demand from commercial tenants and investors are what push prices up, and consequently, like the private property sector, it moves in cycles.
- Commercial property is much more stable than housing because companies will rent out property for long periods up to 25 years.
- The value of that property when it is sold will relate to the amount of rental income that can be expected.
- The risks with commercial property is that because you are investing in bricks and mortar the buildings can become unpopular for rent or difficult to sell, depending on location. So your fund could be left with a building that is costing money to maintain but isn’t earning much rent.
- Unlike some other assets, it is not easy to sell property quickly as it is not very ‘liquid’. This means there could be delays in paying investors a return on their money.
- There may be limited opportunities for an investor to cash in their investment during the period so this is only suitable for people who are happy to invest for the long term.
By combining property with other types of investments vehicles, such as cash, shares and fixed securities, the risks of property slumps can be offset. Property is, however, a useful portfolio diversifier.