WITH interest rates rising, house prices wobbly (in some areas), and inflation threatening to return, investors are increasingly turning to commercial property - shops, offices, retail parks and warehouses - as a safe port in a storm. However the economy fares, tenants of quality buildings like banks and high street stores always pay the rent. Maybe that's why savers put £4bn into property funds in 2006 and saw an 18% jump in the value of their investment. For three years, in fact, commercial property has been the best investment of all, with double-digit annual returns practically a norm. If interest rates are low and rents strong, office blocks are a licence to print money. Says Frank Cochran, at Wolverhampton-based FSC Investment Services: "Property is a have-your-cake-and-eat-it -situation with everything that older, asset-rich investors could want, with steady, reliable income which can be taken in the most tax efficient way." Standard Life Investments boasts a 44% rise in the unit price of its Select Property Fund since launch in October 2005. Invested in Asia, Australia, the US and Britain, it has collected nearly £1.2bn from UK investors. As savers look for an Individual Savings Account (ISA) investment ahead of the April 5 deadline, many will be directed to property by financial advisors. Threadneedle Investments, the latest fund manager to launch a new UK property fund suitable for ISAs and SIPPs (personal pensions), is up against many established rivals including New Star Property, ING UK Real Estate Income and F&C Commercial Property Trust. Possibly 55% of the money invested in unit trusts in November went into commercial property, says The Investment Management Association (IMA), with leading funds like Norwich Property and New Star Property taking £100m per month. Amid fears UK commercial property has peaked, however, too much money could be chasing too few buildings - and drives prices to unrealistic levels. Says Mark Dampier, head of research at financial advisor Hargreaves Lansdown: "Bricks and mortar have been rapidly gaining momentum as an investment class. "The inflow of money is now so great that property fund managers have trouble investing it quickly enough." Says Mick Gilligan, funds expert at financial advisors/ brokers Killik & Co: "Two or three years ago, large corporate tenants happily paid 6% rental income, or thereabouts. Since then, property values have risen so much, some transactions show a yield of barely 3.5%. That's quite scary." In a well-planned portfolio, the portion held in property tends to reflect personal attitude to risk, but advisors usually suggest at least 10-20% as a counterweight to riskier equities and dotcom-bubble style meltdowns. Property funds, says Gilligan, can have problems too. "Many funds have about 20% of their holdings in property company shares, the rest in buildings," he says. "If many investors want money out at the same time, there can be liquidity problems. In the 1990s, Germany, funds were forced sellers of buildings when investors wanted money back." | 
