Simon Morris looks out for the property ‘cash drag’

By Simon Morris On Thursday, July 24 th, 2014 · no Comments · In , ,

Simon Morris keeps a close watch on UK property news in his capacity as a London-based independent property specialist who acts as an advisor to UK property investment funds. In this blogpost Simon looks at a recent article in the FTAdviser which talks about a ‘drag’ on open-ended commercial property funds.

The sector at the moment is undoubtedly popular. We’ve blogged before about the massive growth in the commercial property market in 2014. Despite this success some fund managers believe that investors need to be aware of a ‘cash drag’ which has been brought about by high proportions of cash in portfolios from an influx of inflows which is preventing investors from capitalising on the growth element of funds. This has all been caused by the volume of investors moving into the same funds at the same time.

Property sector yields

With massive inflows of money, property funds take a while to buy property. During this time cash will sit in the fund with little earning power. The longer the cash sits in the fund, the longer investor miss out on the healthy yield in property.

The reason many investors want to get into these funds is the lack of return on cash, investors need to be aware of this drag affect at the moment. There have been many gains in recent months, and it still looks like more are to come in future.

Property recovery

Recently property has recovered much of the ground lost since 2008. Despite the ‘cash drag’ real yields in this sector are attractive, but you should always consider the finer detail before committing to an investment.

Underlying growth and occupancy rates improving daily are making commercial property attractive as the recovery continues. Indeed, the speed of the recovery has surprised many investors, some even missing out at the opportune moment to buy in.

Strong recovery

The recovery seemed to gain strength in May 2013, growth has continued into 2014 after a minor blip in January this year as the market and investors took stock and looked at the scale of returns over Christmas.

Investors are still frustrated about cash yields and this has led to a charge into commercial property funds. Higher returns are still expect for 2014, and this type of investment is a really popular source of yield.

Set for further growth

Simon Morris believes that commercial property continues to be the investment opportunity of this year, no other assets class shows signs of matching the potential return.

It’s always vital to take advice from an independent specialist before making any investment, it’s also vital to measure your exposure to risk. If you want to learn more about investing in property you can download the Simon Morris Property Investment guide here.

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