Investors will come back to commercial property. But not yet.

Interestingly, in the 1980s the super funds owned most of the institutional grade property in major Australian cities. But in the 1990s bust they discovered the lack of liquidity. So they set up the listed property trusts, now called real estate investment trusts (REITs), as a more liquid vehicle for investment. Now, in the GFC-induced downturn, they have the liquidity but also the volatility. It makes sense for them to come back to direct property investment, where they have less volatility and more control over the investment. And they will.

Individual investors and smaller super funds may be limited in their ability to take on suitable properties. There will be no shortage of alternative vehicles for investment once investors return.

But not yet. Most investors will only come once they’ve seen a history of strong returns. They will miss the early returns that come from an early recognition of the opportunity. Indeed, it is the excessive caution of investors that misprices the market and creates the opportunity for commercial property investment.

There may be other markets with prospective returns over the next five years of around 15 per cent, but I don’t know now which they are. This is the time for investors, both small and large, to be brave.

Frank Gelber is a director and chief economist for BIS Shrapnel – www.bis.com.au