It’s been talked about. And now it’s finally happened. The Reserve Bank has hiked interest rates by 0.25%, and already it’s impacted the share market. But in these uncertain times, commercial property funds can be a steady, reliable investment.
There’s plenty weighing on investors’ minds right now.
Inflation has jumped to 5.1% – a level not seen since 2008. This prompted the Reserve Bank to lift the cash rate 0.25% in May, with a veiled comment that more rate hikes could be on the way as our central bank starts “the process of normalising monetary conditions”.
Not surprisingly, the May rate rise rattled the Australian sharemarket, which immediately dipped 0.4% on the back of the Reserve Bank’s rate decision.
Add in the uncertainty of an upcoming election, and a residential property market that is cooling in some major cities notably Sydney, and investors can be left wondering what options are available to earn a healthy, regular return.
The solution could be commercial property funds – in particular unlisted commercial property funds that are not impacted by share market volatility.
The economic outlook remains positive
To understand the appeal of commercial property funds, it’s worth a quick look at why the Reserve Bank lifted interest rates.
The Australian economy is on track for growth, with a forecast for the unemployment rate to drop to 3.5% by early 2023, which would be the lowest level in almost 50 years.
However, rising inflation could put the brakes on growth, and the Reserve Bank is keen to rein in living costs by raising interest rates.
The upshot is that the economic outlook is fundamentally positive. That’s good for businesses that rent commercial properties. And this feeds into strong, regular rent returns for commercial property investors.
Why commercial property is so appealing
Commercial property has a track record of delivering solid rental yields. Select the right property, and investors can also potentially earn healthy long term capital growth.
These upsides can make a direct investment in commercial property seem very attractive. But there are compelling reasons to invest via a commercial property fund.
For most direct investors, limited capital means it is really only feasible to own one commercial property. This concentrates risk, especially as more affordable properties may be tenanted by a single small business. It also means your investment is exposed to the fortunes of one geographic market.
Investing directly will usually also mean taking on a significant debt to fund the property – a step that may not be viable or appealing for every investor.
Investing through an unlisted commercial property fund not only overcomes these downsides, it can provide significant pluses for investors.
Access to high quality, diverse properties
A commercial property fund will have considerably more capital to invest than individuals. This enables the fund to purchase high quality properties that attract blue chip tenants – companies that may be publicly listed, or nationally-based with proven business models.
A super-sized pool of capital also allows a managed fund to invest not just in one property, but in multiple properties spread across sectors and locations. This is an important plus for investors as it brings diversity to the mix, which lowers risk.
By investing via a commercial property fund, investors not only don’t need to take on additional debt, they face none of the burden of managing a commercial property and its tenants.
In fact, investors benefit from the expertise of the fund manager when it comes to selecting appropriate properties, negotiating lease arrangements to maximise rents and minimise vacancies, and recognising opportunities to add value to the property(s).
Damian Collins, Chairman of Perth-based Westbridge Funds Management, sums up the advantages of a managed fund.
He explains, “Investors in unlisted commercial property funds can expect the financial rewards of regular returns generated by ongoing rent receipts, coupled with the potential for capital growth – yet with none of the hassle of everyday property management.
“These factors explain why many Westbridge investors hold units in several of our commercial property funds. It can be a rewarding, yet a very easy investment. And unlike shares or listed property trusts, unlisted commercial property funds are not impacted by share market fluctuations.”
Spotlight on a commercial property fund
For investors unfamiliar with unlisted commercial property funds, it’s helpful to take a look under the hood of a fund to see how they work – and what’s in it for investors.
The Westbridge Diversified Fund No.4 is a diversified fund that currently holds two key assets leased to ASX listed or national tenants: an industrial distribution facility in Broadmeadows, Melbourne, Victoria, and a recently upgraded warehouse logistics facility in Canning Vale, Perth, Western Australia.
The Fund is now is in the process of acquiring a third property – a 1.07 hectare retail complex just south of Perth.
The retail complex is anchored by a freestanding Dan Murphy’s outlet and benefits from prominent exposure.
So what are the benefits of the Westbridge Diversified Fund No.4 for investors?
“We aim for consistent monthly income with target distributions of 7% per annum* backed by a diversified income stream of rents from high-quality, reputable ASX-listed and national tenants,” explains Damian Collins.
“In addition, each site has been carefully selected following extensive due diligence, to assist the potential for capital growth.”
To understand more about commercial property funds and how they can bring regular returns to your portfolio, or to invest in the Westbridge Diversified Fund No.4, visit westbridgefunds.com.au to request a copy of the Product Disclosure Statement and Target Market Determination.
* Forecast distributions are not promised nor guaranteed and are based upon a number of assumptions. Their achievement is subject to risks. The target return is a target only, not a forecast and it might not be achieved.
This information has been prepared by Westbridge Funds Management as a general guide only. It does not constitute an offer for sale, or solicitation for the purchase of securities, financial products or other investments. It should not be relied upon to determine or to make decisions about the investment objectives, financial situation or individual needs of any person. Westbridge Funds Management recommends investors seek professional advice before making a decision to invest. All investment carries risk and investors should assess the risks of investing in any fund before deciding to invest. Manager, Responsible Entity and Product issuer: Westbridge Funds Pty Ltd ABN 33 652 852 214 AFSL 533936. Mair Property Funds Limited ABN 48 151 957 676 t/a Westbridge Asset Management. Mair Property Securities Limited ABN 28 091 623 862. AFS Licence 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban.
