Investment Performance and Portfolio Strategy

Because of the nature of property as an investment, which has been detailed in earlier chapters, there is a great need to manage it effectively. Generally larger investment amounts are being dealt on the market and the collectivisation of savings into the financial institutions has led not only to their growth but also their need to be accountable. Proper management of property investment is part of this need, coupled with the requirements to match the efficient management of other asset classes, if property is to be treated as a significant player in the investment portfolio. Some property investment managers concentrate on opportunities which require management and active development, redevelopment or refurbishment; others are content to hold fully let prime investment properties on institutional leases and almost treat the investment as a paper investment with little active management. The main problems of property as an investment have been summarised as the lotting problem (the size and indivisibility of lots for sale); illiquidity; the need for management; and the complexity of financing development (Dubben and Sayce 1991). These areas all require effective management. The investment decision will relate to the amount of property within the institutional portfolio. To compete with gilts and equities the property portfolio will need to consider the proportion of the property investment placed in different sectors. For instance, some commentators in the past have made generalised statements suggesting that the ideal pension fund portfolio could be around 50% retail, 30% office and 20% industrial. This chapter will indicate some of the complexities of such a decision.