Advisers continue to recommend open-ended property funds over Reits as a result of habit, according to Tom Walker, who runs the Schroders Global Cities fund.
Mr Walker said the trend was particularly pertinent among older advisers who were around before 2009 when Reits entered the market.
He said the liquidity of physical property meant the assets were unsuitable to be held in open-ended funds that offer daily liquidity.
Such funds are banned in Australia, Germany and Holland, where the Reit market is strong.
Reits were only permitted by UK law in 2009, but have existed in the legislation for decades in other countries.
Data from the Association of Investment Companies (AIC) shows there was £29.1bn in daily dealing open-ended property funds at the end of November 2019, compared with £18.9bn in Reits.
Open-ended property funds that offer daily dealing have attracted notice in recent weeks with the suspension of the largest such fund in the UK, the M&G Property Portfolio.
Many such funds also suspended dealing in the immediate aftermath of the UK Brexit referendum of 2016 as investors rushed to raise cash amid the political and market uncertainty.
Mr Walker said the problem is that even if the market is strong, it takes significantly more than one day to sell any property.
He added: “There needs to be a generational shift among UK advisers. Reits were only permitted in the UK from 2009, and some of the older advisers keep using open-ended property funds despite this.”
Mr Walker’s fund invests in Reits, so he has an interest in the share prices of Reits performing well.
Defending the use of open-ended funds in client portfolios, Martin Bamford, of Informed Choice Financial Planning in Surrey, said: “We use open-ended property funds within portfolios, with great care.
"As long as the fund has a reasonable level of liquidity, and a diverse range of holdings, and the client is a genuinely long-term investor, then the risk of temporary trading suspensions is minimal.
"Commercial property has an important role to play within a well-diversified portfolio, offering negative correlation with other mainstream assets, and inflation-protection from its holdings in real assets.
"Where investors opt for closed-ended property funds, instead of trading suspensions they face the risk of substantial discounts during tough times. Investors opting for property shares lose some of the diversification benefits of bricks and mortar property assets.”
Brian Dennehy, managing director at advice firm Dennehy Weller, said he has invested in open-ended property funds for most of the past thirty years, and manages the risk of liquidity problems by selling the funds when he thinks a downturn is coming.
He said he generally prefers open-ended property funds as they offered a good choice of underlying investments.
He hasn’t had clients in such funds since the summer of 2019, however.
David Scott, an adviser at Andrews Gwynne in Leeds, said he only uses investment trusts for property exposure for liquidity reasons and to be able to invest in niche parts of the market.
