A number of commercial property funds have suspended trading this week, following uncertainty from investors.
Commercial property has been a popular market for investors in recent years, with prices climbing significantly since 2009. Funds have allowed individual people to invest in offices, shopping centres and other property types and benefit from the capital growth. They now account for around 7 per cent of all investment in commercial real estate in the UK.
Investors fearing uncertainty following the UK’s Brexit vote in last month’s referendum, though, have begun to withdraw their money from funds, worried that property prices may drop due to slower economic growth.
In response, six funds have blocked investors from taking their money out.
Standard Life was the first to shut its doors on Monday 4th July, suspending trading on its £2.9 billion fund. Prudential, M&G Investments, Aviva and others followed suit.
Standard Life has said that the suspension will remain for as long as it is practicable, with a review of the decision taking place every 28 days.
Together, The Guardian reports that the funds are worth a total of £14 billion.
Philip Nell, a fund director at Hermes, told the BBC that there has been “a massive over-reaction to what’s been going on over the last two weeks” from investors.
Great Portland Estates, in a trading update, said that expected economic growth in London to weaken in the near term, due to confidence lowering amid negotations for new trading agreements with the EU.
Knight Frank, though, has reassured that the UK in the medium term will be a “very good place for investment”, after short-term concerns have been resolved.
“Once stability comes back, people will make more tangibleinvestment decisions in the medium to long term,” Alistair Elliott, senior partner and group chairman at Knight Frank, told SCMP.
Andrew Bailey, the recently installed chief executive of the Financial Conduct Authority, meanwhile, insisted to The Guardian that there is “no cause for panic” and that the suspension of funds is a normal reaction.
He called for calm among investors and the market.
“It’s designed into these structures to deal precisely with that situation where there’s been some shock to the market, if you like, and there’s a presumption of a valuation adjustment which is quite hard to capture in illiquid assets at high frequency,” he explained. “And the purpose of the suspension is to create a pause, if you like, to allow that process then to happen. And that’s sensible.”Google+