Why commercial property is trending up
While everyone seems to agree that the residential market is currently moving sideways, investors often find it difficult to gauge how direct investment into commercial property is really travelling.
Perhaps the best gauge is to take a look at what the sharemarket thinks about A-REITs (Australian Real Estate Investment Trusts).
Generally, these yields tend to operate at about 1.5% to 2% below direct investment into property. Nonetheless, they can be a great indicator of where the present trend is heading.
With debt now under control, the A-REITs have put in a solid performance over the 12 months to June this year.
As you can see from the charts, this trend has been consistently upwards when compared to:
- 10-year bonds
- The RBA cash rate
- Most other types of equities
In fact, since January 2011, A-REITs have returned 11.2% in total, as opposed to equities at -9.3%.
Looking forward
With consolidations, the number of A-REITs has dropped from 24 to 19. And investors also have the comfort of knowing they are buying at a discount to current asset backing.
Those A-REITs focusing primarily upon office and industrial property would appear to be performing the best. That is consistent with what we're currently seeing with direct investment into commercial property.
The bottom line
As you're probably aware, the sharemarket tends to price in forward trends, generally giving you a six-month lead-time on what is likely to occur.
As such, you now have yet another source confirming the underlying strength of the commercial property market. This should give you some added comfort to secure a property now, in your own right.
Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.