In June and July, following the vote to Leave the EU and fear of a recession, many open-ended UK commercial property funds were forced to suspend trading and mark down property valuations.
However, this appears to have been an overreaction, and funds are starting to reopen. Henderson have announced their UK Property fund will reopen on the 14th October and Standard Life Investments have announced that their UK Real Estate fund will reopen on the 17th October. Other funds, such as Legal & General’s, remained open, but with a significant pricing adjustment. This adjustment has now been reduced.
In terms of valuations, following the reduction in bid prices initially, values have started to recover and the pricing adjustments removed. Valuations have not fallen in line with initial fears, and the funds have managed to restore liquidity by selling some assets and building up a more significant cash buffer.
We still feel that UK commercial property is a good long term investment, for the same reason that we did when we originally invested into the funds. However, we will be discussing the outlook for this sector in our Investment Committee meeting on the 13th October and deciding how to proceed.
Property acts as a good asset class for diversifying an investment portfolio and is a good source of income. Provided the liquidity issues can be managed, there is a place for exposure to this sector in a diversified portfolio.