Broadening your investment portfolio with property

The world of investments is more than just shares and bonds; there is a wide choice of funds that can be utilised for your portfolio. One such branch of investments is property; commercial property in particular.

Not many of us are fortunate enough to be able to afford an entire string of houses or flats for the rental market, but access to investment in commercial property such as offices, shops and warehouses for sale can broaden your investment portfolio. This type of investment can sit well alongside your saving investments such as shares, bonds and cash, in order to diversify your holdings and aim for the best possible results.

Instead of going out and buying your own offices, shops and warehouses, you can choose to invest in a property fund which does the hard work for you. You and your financial adviser may want to seek a fund manager who strives to find ways to improve the buildings they own through asset management activity such as refurbishing or extending a property or increasing the tenant’s lease.

Classifying commercial investment property

The idea behind commercial property investments is that your fund manager purchases the property and leases it to tenants. This can happen almost immediately with property that is already kitted out to its purpose, but sometimes renovation projects and planning permission may be needed to change the usage of an existing building. Generally it is possible to divide commercial property into the following four areas:

  • Retail
  • Offices
  • Industrial
  • Other

Retail – this type of commercial property includes small high street shop units, department stores, shopping centres, retail warehouses (e.g. those displaying furniture) and supermarkets.

Offices – offices range in size from small individual buildings let to a single tenant to many tenants in large business parks.

Industrial – industrial property includes storage and distribution warehouses (e.g. distribution centre for an online shop).

Other – other types of property that are not so easily classified are hotels, student accommodation and leisure complexes. As these are relatively new areas for investment, there could be a lot of potential here for further diversifying your portfolio.

Risks of investing in property

As with any type of investment, there is a certain amount of risk involved with investing in commercial property. If you already own your house, you will probably know that the housing market experiences both growth and decline, meaning that the value of your home can change both short and long term. Commercial property can be affected by the market conditions too; tenants will only be able to make use of premises if their turnover allows it.

Therefore it is advised that you understand the business cycle before taking the leap of investing in a commercial property fund. Your financial adviser should be able to help you to identify other risks, such as those particular to in the sector you are interested in.