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It is often noted that, in an uncertain economic and performance environment, investors tilt their asset allocation and portfolio decisions towards “defensive” assets – that is, those whose future performance is predominantly underpinned by contracted or well-secured income as opposed to prospective growth. Or put another way, “bondtype” rather than “equity-type” investments.
Property does not fit neatly into the conventional “equity versus fixed-income” analysis since its cash flows contain elements of both, albeit to differing extents across property’s sub-sectors1. Prime high street retail investments, for instance, which typically trade at relatively low income yields, may be considered as equity-type assets since more of the investment reward is composed of capital growth rather than contracted income. Industrial and logistics property, by contrast, generates most of its reward through its income return and may be considered as more of a bond-type investment. Analysis in this area highlights property’s key role in certain types of institutional portfolio and notes the growing importance, in a low interest rate environment, of the bond-like component of property returns.
The performance history is also persuasive. Over the past ten years, industrial and logistics property across the Eurozone has generated an average income return of 7.8% p.a., compared with 5.5% for offices and 6.2% for retail.