UK property funds are far from reopening

Investors face a long wait to access the £ 13 billion currently trapped in UK property funds, experts predict, as businesses remain ‘far from normal’ and the commercial property market continues to decline. ‘be moderate.

Independent appraisers said there were a number of things – many of which were “quite far away” – that needed to happen before the survey body agreed to lift the uncertainty clause on the appraisal. material from all sectors, which in turn would see real estate funds reopen.

Nick Knight, UK Valuation Manager at CBRE, said: “In order to lift the clause, the main criterion is that we need to see a more normal level of activity, therefore more transactions in the market. Once the activity starts again, the clause will be lifted in this sector.

“We have already lifted the valuation clause for certain sectors, such as independent supermarkets.

“But the main sectors in which these real estate funds invest are offices, industry and retail. There is some activity in the industry right now, but not a lot of activity at all in offices and retail. The clause will likely stay in place longer for retail. “

The 11 UK property funds available to retail investors, with £ 12.8 billion in assets between them, have been on hold since the third week of March.

The portfolios were blocked because the coronavirus crisis had caused ‘significant uncertainty‘ in the UK property market, meaning that appraisers were unable to assess the assets of the funds with the same degree of certainty than it would otherwise be.

Rupert Johnson, global head of valuation and advisory at Knight Frank, agreed that “few businesses” were “more or less back to normal” yet.

What must happen

Mr Knight said one of the main causes of uncertainty and blockage in market transactions was the fact that the government had suspended forfeiture provisions in leases and prevented the use of legal requirements to collect rent. .

As commercial properties in the UK – owned by real estate funds – can no longer receive guaranteed income or rental yields, potential buyers have refrained from making transactions in the market.

Mr Knight said: “If your primary reason is to receive this income, but it is no longer guaranteed, you are likely to withhold your investment until we return to normalcy.”

Mr Johnson agreed, noting that the figures for collecting rents and service charges, which are expected to be released in late June, would be a good indicator of how many companies are paying those charges.

He added: “[The figures] are very likely to be down from March as companies look to preserve liquidity – and that may not be good news for valuation. “

Mr Johnson and Mr Knight believed it was likely that real estate funds would attempt to open in unison, although the rules may allow some to open before others if different real estate sectors saw the clause lifted at different times.

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