Recession in the property market

Biotech trusts top performance charts in February

House of cards to crumble? Recession in the UK property market ‘likely well underway’

James Baxter-Derrington and Investment Week, 29 April 2020

The UK property market is headed for a 2020 recession due to its high correlation with the economy, according to fund managers and property valuers, only adding to the woes of property investors who have found their money trapped in gated open-ended vehicles for over a month.

Since 18 March, more than £10bn of investors’ money has been locked in open-ended UK property funds (PAIFs) following the introduction of a Material Uncertainty Clause (MUC) by property valuers, which meant they were unable to ascribe a value to physical property amid unprecedented levels of economic uncertainty…

Jonathan Bayfield, head of research UK & RoI real estate at Aviva Investors, which suspended its property fund on 18 March, said it could be a struggle for property fund managers to generate income streams “as occupiers fail to generate sufficient revenue to make rental payments and, in extreme cases, sustain their businesses”.

However, Emma Clarke, head of fund research at Beaufort Investment, which is maintaining its multi-manager funds’ exposure to physical property until it sees greater clarity from independent valuers, said the firm’s underlying fund managers are attempting to renegotiate rental payments from tenants, such as moving from quarterly to monthly payments…

Long-term prospects

Guy Glover, fund manager of BMO UK Property fund, which was suspended on 18 March, pointed out that one “unforeseen change” as a result of the pandemic-induced lockdown could be the “impact of home working on future office demand”.

QuotedData’s Richard Williams agreed, adding that another long-term theme could be an acceleration in online retail sales which could be negative for bricks-and-mortar retailers but positive for investors in warehouses.

“Another sub-sector that has fared well during the crisis is the healthcare property sector, where income is backed by the government,” Williams continued. “Social housing companies such as Civitas Social Housing, where its income comes indirectly through the government in the form of housing benefit, has also fared well and has strong growth dynamics.”

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