Commercial mortgage holders 'should take risks'

08 July 2010

Written by Jeni Browne

Commercial mortgage holders should take a countercyclical approach to purchasing property, in order to increase returns, one expert has said.

Robin Martin, head of research for Legal & General Property, wrote in the Financial Times that there has been a broadening of the gap between the best and worst performers in portfolio investment since 2005.

In the expert's opinion, it is an investor's exposure to risk that drives success, one of the main measures of which is the length of time that an asset is leased.

Although longer-lasting contracts mean that a landlord can have improved income security because the tenants are committed to pay rent for longer, it can reduce yields, Mr Martin advised.

In 2008 and 2009, this meant that properties let for extended periods performed better than short-term tenancies as the latter were seen as high risk, forcing these properties down in price.

Selectively taking on a number of less-certain assets like these could see better returns for portfolio investors.

Mr Martin's comments follow an announcement by investment firm Rudolf Wolff that it would set up a new real estate fund in London, as it expects to see increases in the value of commercial property in the city and a rise in rent.

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