Commercial real estate has the ability to provide long-term returns through rental income, rental income growth and capital appreciation.
Real estate returns have a low correlation to broad equity markets and offer diversification benefits to existing equity and bond holdings.
Rental income makes up the majority of long-term commercial real estate returns. Real estate typically offers a stable income return through the payment of rent over the length of the lease. An asset’s rental income may also provide inflation protection over the medium term.
As a physical asset, real estate may act as a store of value. Compared to a bond or equity, a tenant default allows the landlord to replace them with a new tenant while value remains stored in the land or building. A bond or equity default may result in the entire loss of capital and income.
There is the potential for income growth and capital appreciation through favourable demand/supply dynamics and active management to generate value.
As a physical asset, real estate managers own and manage properties with the potential to add value through focused active asset management.
Real estate yields typically offer an attractive risk premium to long-term government bonds.