Credit Suisse Says Commercial Real Estate Is Key Investment Component

Investors Offshore, London

25 November 2002

Credit Suisse Asset Management (CSAM), the institutional and mutual fund asset management arm of Credit Suisse First Boston, believes commercial property should be seen as a core component of a portfolio rather than an alternative asset class. CSAM gives its reasons as follows:

• UK Commercial Property has outperformed other asset classes over 3, 5 and 10 years. The total return forecast for 2002 is 9%.
• Property values rise and fall, but with limited correlation to equities in particular.
• Property offers bond characteristics due to lease length with potential for income enhancement from upward only rent reviews.
• Current property yields are at an historic high - average income yield is 7.1%
• Property offers the opportunity for capital enhancement, through active management.
• Many pension funds currently need income to match liabilities.
• Property was 20% of an average pension fund 20 years ago - now poised to re-emerge as a core asset class rather than just another 'alternative investment'.

CSAM believes that the issue of illiquidity of property as an asset class has been overplayed, and property is little different from any other sector where the investor is making sufficiently large disinvestments.

The implications of FRS17, where unfunded pension liabilities must be stated in a company's balance sheet, are leading analysts to look further at measuring risk. (FRS17 requires recognition, in a defined benefit pension scheme's funding company's balance sheet, of the market value of the pension fund's assets and liability to fund future pensions). CSAM believes the conclusion is that the equity and bond characteristics of property mean that it should be considered a core asset class.

Glenn Newson, Head of Property at Credit Suisse Asset Management, said:

"As the number of retail funds grow, and as institutions increase weightings, the future for property as a core asset class looks well placed. If the sector can also overcome the reluctance by asset allocators for weightings to float within a prescribed band, rather than seek to dispose of property if the stockmarket falls, then property really will be a core component. We believe property should be a long term strategic part of asset diversification."

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