This month’s article focuses on commercial property, and whether it is a worthwhile addition to a diversified portfolio investment strategy in 2023, or whether you should be watching from the sidelines. The spoiler will be that the answer is not 100% clear, but I hope there will at least be some points of consideration that spark some debate, some thoughts and perhaps some tweaks here and there.
Commencing at the bearish end of matters - am I mad? Commercial property does not perform well in recessionary environments, surely? Well, the Bank of England is having to row back at a reasonable rate on its incredibly bearish predictions from November 2022, in the light, or the wake, of the “bad ship Truss”, or whatever you would prefer to call it. Are we guaranteed this output contraction? For clues, we can gaze across the pond at the USA, which is a fair few months ahead of us in this cycle - perhaps six, perhaps more - recent news has outlined that the economy there is outperforming expectations, even in the wake of the forecasting tool with the 100% record - no false positives, no false negatives - the inversion of the 3 month/10 year yield curve.
Likewise, we had a surprise Q4, or what looks like a surprise Q4, here in the UK. Buoyed by trade inspired by a strangely timed World Cup, perhaps - but the figures just aren’t as bad as they looked certain to be. Nothing is certain, even in real time; the strength of the job market, aside from anything else, means that GDP seems, somehow, to be trucking on even in real terms, fighting this level of inflation as we all are. We need to wait for the official figures, but recession seems to have been staved off, at least for now.
This is the danger of forecasting - the analysis paralysis, or the inaction. The skills alongside foresight include watching out for the false signs, but also keeping a close eye on the market at the coalface. Reports from agents can be worth their weight in gold as all the headlines track what happened months ago and the RICS valuations are in a similar predicament most of the time, simply because of the methodology that is employed and the relative tightness of the framework.
