A yield of 7.0% on commercial property

Co-founder of the Switzer Super Report
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Despite some predictions that the commercial property market was facing leaner times, with shopping centre property trusts potentially to be impacted by the arrival of Amazon and higher bond yields forcing up capitalisation rates, the listed property trust put in a pretty strong performance in calendar 2017. For the year, the sector returned 5.72% (distributions plus capital growth). This took the three-year return to an average of 11.0% pa, and the five-year return to an average of 13.23% pa.

In 2018, the sector has cheapened a little as bond yields have risen. This has led to forecast distribution yield for the major listed property trusts such as GPT, Dexus or Scentre moving back into the “big figure 5” category, with range typically now 5.0% to 5.5% pa.

An alternate to investing in listed property trusts is through an unlisted trust. Typically, these pay higher yields than listed trusts, are either single asset or own a less diversified mix of property assets and are smaller in size. The trade off, of course, is that there is no liquidity, so investors typically agree to a timeframe for the fund with the aim of selling the assets and winding up the fund around this time to provide an exit path.

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