News that Standard Life Investments had suspended trading in its flagship £2.9bn real estate fund has intensified concerns over the UK property market, with other funds expected to follow suit.
Standard Life yesterday (5 July) announced it had suspended redemptions on its UK Real Estate fund after the UK’s vote to leave the European Union caused the fund to haemorrhage money.
Financial experts have said this fund suspension is just the start as more investors will be looking to exit commerical real estate funds.
Scott Gallacher, director of Leicester-based Rowley Turton, said concerns about a weakening sterling, the possibility of rising interest rates, and maybe a recession, mean the UK commercial property sector might not be the best place to be at the moment.
“Investors are likely to look to exit property funds, and – due to their illiquid nature – suspensions are almost inevitable.”
Mr Gallacher said advisers should have already informed their clients of the possibility of suspensions, and – provided they have a diversified portfolio and a long-term investment perspective – should “sit tight” and not panic.
“However, if advisers don’t have a diversified portfolio and may need access to the money sooner rather than later, they should be reviewing their holdings as a matter of urgency.”
“There are currently more sellers than buyers, so it is possible prices will fall further.” Patrick Connolly, Chase de VerePatrick Connolly, certified financial planner at Bath-based Chase de Vere, said the decision of Standard Life to cease trading on its property fund is a “real sign” of the outflows funds are experiencing, and agreed more property funds will do the same, even if only as a precautionary measure.
But he said the speed and scale of Standard Life’s move was surprising, particularly because the provider seemed to have “sufficient levels” of cash and liquid assets to cater for anticipated withdrawals.
“Investors need to be brave,” Mr Connolly said. “Property funds have already marked down prices and, as there are currently more sellers than buyers, it is possible prices will fall further.
“While Standard Life’s decision will be disappointing to those wanting to access their money, it is understandable and has been made for the right reason; to protect existing investors.”
Ben Yearsley, investment director at the Wealth Club, said: “Unfortunately, one fund suspending may well lead to a run on other property funds as other investors panic and sell their holdings.”
He pointed out that property has had a good run for the past few years, adding “inevitably” there was going to be a slow down at some point.
But Mr Yearsley said the movement towards property funds suspending is a short-term issue caused by the commercial property market adjusting to the reality of Brexit.
“Fundamentally whether we are in or out of the EU, the UK will be seen as an attractive place to do business,” he said.
“There might be a lower demand for the sector in the short-term, with some companies choosing to postpone decisions, but buyers will return when they see value.”
katherine.denham@ft.com
