Investors should not discount property completely despite property investment firms including Standard Life Investments (SLI) stopping redemptions in its flagship £2.9 billion UK commercial property fund, according to multi-manager Architas, part of the AXA group.
Standard Life’s decision was followed by similar moves from Aviva and M&G. Architas senior investment manager, Nathan Sweeney, commented: “Sentiment seems to have softened towards selected property assets in the last few days as the reality of Brexit has set in and the decision by Standard Life Investments to suspend dealing in their UK property fund following large outflows will cause more anxiety for investors.” Sweeney said that rental increases and demand in some sectors is likely to fall, but added: “Investors should be wary of discounting property completely and should carefully consider why they chose to hold it within their portfolios. It is still a lower volatility, potentially attractive income play in a low growth, low yield environment.”
Following the Brexit votes, a number of UK fund managers have marked down the value of UK property assets by up to 5%, as a fair value adjustment on the advice of valuers. Share prices in the property and building sector have also fallen, as have some UK real estate investment trusts. According to reports, UK closed-end property funds are now at a discount to their net asset value of around 10%. However, Sweeney said there was still a case for UK property based on long-term fundamentals. “Although there may be short-term impacts on UK property, whether the UK leaves the EU or not, the strong structural forces behind the trends in these specialist markets is likely to continue over the long term,” he commented.