Investors searching for yield in the current low interest rate environment should consider allocations to commercial property instead of bonds, a specialist fund manager has said.
“Just before the GFC (global financial crisis), when property prices ran very hard and the equity market was running very hard, there was virtually no gap between [the yield] you were being paid on a 10-year government bond [and the yield on commercial property],” Charter Hall head of capital and product development Adrian Harrington told delegates at the Australian Shareholders’ Association Conference 2021 held in Sydney recently.
“However, this time around, as interest rates have come down and the 10-year bond yield has come down, the [difference in the] yield that you’re getting from commercial property is possibly as wide as it has ever been.”
According to Harrington, this situation is unlikely to change if interest rates rise in the short term.
“Even if [interest rates] start to head back up, and they’ve ticked up a little bit in the last few months, there is still [going to be] a fairly large [favourable] gap between the yield you’re getting from commercial property versus the yield you’re getting from 10-year bonds,” he predicted.
He also told individuals not to worry about reports regarding the waning popularity and usefulness of the asset class as a result of COVID-19 lockdowns forcing employees to work from home instead of in a conventional office space.
“That is changing as obviously the COVID rates, particularly here, have come down. But what we’re saying is there has been an evolution in the way people have been working for a long time and technology has driven that,” he said.
“I’ve worked from home plenty of times before COVID, and I’ll work from home again going forward, but I think this view that people are going to spend more time working from home than in the office is short-sighted and corporations are now realising that they need to bring people back into the office to collaborate and ensure the culture of the company grows.
“[To that end] we’re certainly seeing leasing activity in the last couple of months come back.”
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