An international funds management house has advised investors not to be alarmed as to the perceived effect the post-COVID-19 practice of working from home might have on portfolio allocations to commercial property.
Dimensional senior investment strategist and vice-president Warwick Schneller noted there are a few significant factors investors need to consider before deciding to rebalance their portfolios with a reduced weighting towards or elimination of any commercial property holdings.
“First, the post-COVID working-from-home trend is not news to markets. Real estate investment trusts (REIT) focused on office properties have fallen nearly 25 per cent since the start of 2022. By contrast, other REITs declined by only around 13 per cent in that period,” Schneller noted.
“Second, keep in mind that office REITs are only one segment of the market, accounting for just 8.1 per cent of the S&P/ASX 300 A-REIT Index as of June 2023.”
Further, he pointed out allocations to REITs will allow investors to enjoy the benefits of listed investments, an element that has been demonstrated by the Australian securities market recently.
“The gradual drop in values in listed securities over 18 months reminds us that public markets offer the benefits of real-time pricing, transparency and liquidity,” he said.
“By contrast, owners of unlisted property often have to play catch-up by making sudden and dramatic devaluations. In this way, returns of securities with infrequently updated prices may appear less volatile than in reality.”
According to Schneller, with regard to the commercial property market, individuals must resist having their investment strategy influenced by poor short-term returns.
“While it has been a rough 18 months for listed real estate, with cumulative negative returns of around 17 per cent, this same asset class over the past four decades has delivered average annualised returns of more than 9 per cent,” he said.
“All that adds up to there still being a place for property in a diversified portfolio.”
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