As you may be aware, dealing (both purchases and sales) in the Standard Life UK Real Estate Fund (and its Income and Accumulation Feeder funds) has been suspended owing to increased redemptions by investors that cannot be met due to the relatively illiquid nature of commercial property. To avoid being forced into selling assets at “fire sale” prices, there is now to be a suspended period to give the managers time to negotiate property sales at reasonable prices and thus to protect ongoing investors in the fund.
Following the Leave vote, the outlook for Commercial Property has become more uncertain. No conclusions can be drawn about the impact of leaving the EU on commercial property as an asset class while the future arrangements with the EU remain in doubt. Until this is finalised, all forecasts are subject to such a high degree of error as to make them unhelpful.
We have always believed it is important to treat property as a genuinely long term investment as it is relatively illiquid and the costs of trading are high. Nevertheless, its characteristic stable income with the scope for capital growth are, and remain, attractive, which is why it should remain part of a well diversified portfolio. Rents on commercial properties are contractually agreed and in a low growth, low interest investment landscape, upward only rent reviews provide inflation protection.
At the moment it appears investment markets are being driven by sentiment rather than valuation. In time we believe fundamentals will reassert themselves. We will keep you informed as to our thoughts in the weeks and months ahead.