The ructions in the British property market after the EU referendum result haven’t led to a flight of capital from UK commercial property according to the manager of the £346m F&C Real Estate Investment Trust.
Peter Lowe was commenting in the annual results statement of the trust, which covered the 12 months to 30 June.
The trust announced a dividend of 5p for the year, which equates to a yield of 4.7 per cent. It returned 26.8 per cent for the year, compared with 21 per cent for the average trust in the sector in the same time period.
Mr Lowe said: “The first months of the review period witnessed a fall in capital values as the market absorbed the shock of the EU referendum result. Property has since seen a re-balancing with capital value growth returning to recover the ground lost during the early months of the financial year.”
He said overseas investors buying UK property, local authorities borrowing money to buy property and the popularity of alternative sectors such as student property, healthcare and self storage have driven returns in the sector.
Mr Lowe said: “Although there were some price reductions, most notably from the open ended vehicles that attempted to satisfy redemptions, these were on the whole fairly minor and available for only a brief window. Most deals proceeded and there was no flight of capital from the UK.”
The fund manager said that in the second half of 2016 institutions were net sellers of property, particularly open-ended funds that needed to sell to meet redemptions but that those trends have stopped in the first half of this year.
He said the retail and office sectors of the UK property market continue to struggle, but logistics and industrial property have performed well because of increased demand for warehouses and other properties that feed into the e-commerce sector.
The F&C Real Estate Investment Trust trades at a premium to net assets of 7.2 per cent.
Paul Milburn, of Newcastle-based Lowes Financial Management, said: "We continue to see commercial property, in particular through physical property funds, as an appropriate asset class to achieve income diversification.
"We accept that capital growth may be limited over the short term but also recognise that over the longer term income has represented circa 75 per cent of the total return achieved.
"Although property prices have risen from their 2009 trough they are still some way short of their 2007 highs. Exposure to UK commercial property can also provide some protection from rising inflation where rent increases are inflation linked.”
He said that in the low to medium risk portfolio he runs for clients around 15 per cent of the capital is deployed in commercial property funds.
david.thorpe@ft.com
