Why invest in real estate?

The arguments for investing in real estate are compelling. The long-term sustainability of returns and coping with more volatile financial markets have become increasingly important. As a result, there’s widespread acceptance that investors – both institutional and retail – should embrace a more diversified approach to their investments, which includes commercial real estate.

Diversification

Real estate allows your clients to spread some of the risk in a balanced portfolio over the long term. That's because the returns from real estate have a low correlation with equities and bonds over long periods. Also, investing across a variety of international real estate markets provides additional diversification opportunities and can further reduce risk as well as provide a more balanced, income-generating portfolio.

Stability of income

Income from real estate takes the form of rent paid by tenants. Real estate yields over the last 30 years have been consistently higher than most fixed interest securities and the dividend yield on equities. Many lease contracts can offer a long-term and secure income stream.

Performance

Real estate has provided excellent returns over the medium and long term, outperforming equities (FTSE All-Share Index) and delivering returns similar to bonds (FTSE British Government All Stocks Index) over the 10-year period*.

Inflation hedging

As a real asset, real estate has typically provided long-term returns over and above that of the rate of inflation. This is important, as it can protect capital from the erosive effects of rising prices.