Money Matters

Would you buy a warehouse in Daventry? As an investment? I wouldn’t – not even if the commercial property equivalents of Kirstie and Phil (are there such people?) attempted to wax lyrical about its location, location, location.

As far as I can tell, Daventry is – as its name suggests – neither one thing nor the other: a Northamptonshire hinterland halfway between Coventry and Dunstable. It has a rail freight terminal, but it’s surrounded by the Royal Oak, High March and Drayton Field industrial estates. So warehouses in Daventry aren’t exactly in short supply.

Clearly, though, Richard Kirby knows something I don’t – because he’s just spent £17.25m on precisely this kind of less-than-prime real estate. However, as he’s the manager of the Guernsey-domiciled, London-listed F&C Commercial Property Trust, he probably does know a lot that I don’t – and enough to persuade him to make his first property purchase since 2005. So what might that something be?

A 9.05 per cent yield, perhaps. As a cautious investor, who has sat on the sidelines – or lay-bys of the M1 – for four years, Kirby was able to make the purchase out of his fund’s available cash resources. So he has secured that 9 per cent yield without borrowing – enhancing his fund’s revenue and dividend cover.

But if you’re an investor trapped in a bombed out commercial property fund – the average UK fund is down 22 per cent in the past year, according to Trustnet – this may not be the turning point you’ve been hoping for.

F&C maintains a cautious outlook, and says capital values could come under further pressure if rents and income streams are hit by economic weakness. Even so, you may not have too much longer to wait for recovery.

George Shaw, manager of the Ignis UK Property fund, sees yields on prime property stabilising. He cites the Standard Life Office complex in the more sought-after location of Lothian Road, Edinburgh, which was recently bought at a net initial yield of 6.5 per cent.

Dirk Wiedmann, chief investment officer at Rothschild Private Banking & Trust also sees stability, and is increasing his commercial property asset allocation from underweight to neutral. “Opportunities are emerging among prime properties with good tenants in excellent locations,” he says – soundingly uncannily like Kirstie and Phil.