UK commercial property has long been a popular sector for investors. But how is it responding in the wake of the global Coronavirus crisis? Julian Broom, our Chief Investment Officer, provides an update:
Market volatility over the last few weeks has created increased pressure on all asset classes. The turbulence has also affected the UK commercial property sector, as a result of the funds being unable to provide accurate valuations of their assets.
Fund management groups have stepped in to protect investor interests. This is a very sensible step, given the circumstances. The rationale is due to the fact that commercial property valuers have declared something called ‘material uncertainty’ concerning the value of the properties held in the funds. Material uncertainty is a technical tool used by RICS registered valuers. It can apply where there is considerable uncertainty due to unforeseen financial, macro-economic, legal, political or natural events, such as we are seeing with the current Coronavirus crisis.
Consequently, a number of funds have now suspended dealing on their mainstream UK commercial property funds. The table below identifies which funds are currently affected:
|M&G Property portfolio||Suspended|
|Threadneedle UK Property Authorised Trust||Suspended|
|Standard Life UK Real Estate||Suspended|
|BMO UK Property||Suspended|
|Aviva Property Trust||Suspended|
|Legal & General UK Property||Suspended|
|Aberdeen UK Property||Suspended|
|Janus Henderson UK Property Paif||Suspended|
Do note that the M&G fund had already been suspended in December 2019, citing the retail downturn and Brexit issues.
If you are invested in these funds it will not be possible to access capital or sell stock until the suspensions are removed. Regular reviews are being undertaken as to when the suspensions will be lifted; usually these happen every 28 days but we are expecting a much more frequent check as global events progress.
However, it seems likely that the suspensions will remain until Coronavirus restrictions in the UK start to lift. We are starting to see some sort of timetable come to light with the steps which China has been taking this week, which should hopefully offer something of a framework – all being well.
On the upside, income payments from these funds will be maintained for those with income units. If you hold a fund using accumulation units any cash will be reinvested and this will be reflected in a higher unit price.