I am relieved to report that my overall call proved correct: commercial property has continued to perform well since that article was published in March 2014, with the FTSE 350 real-estate companies up 19 per cent, on average, even as the wider FTSE 350 index has lost 3 per cent.
But my IC bias towards value served readers less well. Topping the chart for total returns (paper gains plus dividends) over that roughly 18-month period is Workspace (WKP), the London small-business landlord, which has returned an astonishing 65 per cent. Shaftesbury (SHB) and Derwent (DLN), also London operators, are not far behind in fourth and fifth place, respectively. Companies with regional operations - Hansteen (HSTN) and Redefine (RDI), for example - come further down the list, although the returns have still been very strong.
Revealingly, the company at the bottom of the FTSE 350 real-estate pile is Foxtons (FOXT), the London estate agent, with total returns of -35 per cent. That reflects both the deflating central London residential bubble (house prices in the borough of Westminster are down 12 per cent year on year, according to Acadata) and, in the suburbs, a chronic lack of stock as homeowners sit tight. It was worth avoiding frothy London after all - just in the residential market, not the commercial.
London real-estate investment trusts (Reits) have outperformed because West End and City commercial properties have continued to chalk up much better capital gains than their regional equivalents. Offices in the wider south-east and - more unexpectedly - industrial warehouses are giving the capital a run for its money, but London shops and offices still top league tables for property returns.
That's partly because the key driver of property returns has not been "economic normalisation", as I expected, so much as the maintenance of ultra-low interest rates. The commodity market rout, which was completely unexpected 18 months ago, has taken pressure off the US and UK to raise rates and encouraged Japan and Europe to loosen their monetary taps further. Ever easier money has benefited London property, which overseas investors seem to see as an alternative to investment-grade bonds, more than regional property, which, like high-yield debt, is driven more by business fundamentals.
This leaves us in much the same place as we were 18 months ago - only London shops and offices are even more expensive and the bull market is now in its seventh year.
Perhaps the best illustration of the expensiveness of prime commercial property is the dividend yield on shares in British Land (BLND) and Land Securities (LAND), Britain's two largest Reits. The shares yield 3.3 per cent and 2.5 per cent, respectively - well below the FTSE 100's 4.1 per cent - even though, as Reits, the companies distribute virtually all their earnings.
"Prime property is priced for perfection. It needs low interest rates and a strong economy to justify these prices," says Mike Brown, chief executive of fund manager Prestbury Investments, which runs the Secure Income Reit (SIR). Last year Prestbury seemingly called time on the cycle by selling, ahead of schedule, Max Property, a 'vulture fund' set up in 2009, to US private equity group Blackstone.
Price is not the question beyond the M25, where commercial property only started to recover in 2013 after a protracted slump. There the worry is that a lot of assets will be left behind in the economic recovery, particularly in the retail sector, much of which e-commerce is rendering obsolete. Shopping centre rents fell over the year to August, according to data provider IPD. That bodes ill for retail landlords such as Capital & Regional (CAL) and NewRiver Retail (NRR).
The consensus of analysts both in the City and the property industry is overwhelmingly bullish on commercial property, both in London and beyond. And it's easy to see why: with the Reits determined not to repeat the horrific experience of 2008, neither debt levels nor speculative development are out of control; property yields are comfortably above those on bonds, which will rise only gradually; the sector has very little exposure to eurozone weakness or China or the commodity slump.
It's surely not time to sell yet, but don't think this sweetest of spots will last indefinitely. The biggest risk is complacency - and the property industry is getting complacent.
