Confidence in sector stays high

Aug 15 2007 by Tony McDonough, Liverpool Daily Post

LONG-TERM confidence in the UK’s commercial property sector remains high despite a big increase in the amount of money taken out of specialist investment funds in recent months.

Figures released by the Association of Real Estate Funds (AREF) show that the flow of money out of UK property funds has doubled since the spring. Redemptions increased from £324m in the first quarter to £641m in the second.

Commercial property has been a hugely popular destination for money since the turn of the century when people were stung by falling shares prices and have been rewarded with several years of double-digit returns.

However, with interest rates rising a growing number of investors now believe the commercial property market may have peaked with prices for secondary assets already starting to fall.

Some investment fund managers – including New Star, Norwich Union and Standard Life – have introduced stiff penalties for those wanting to pull their money out of property funds in a bid to stem the outward flow.

With equity markets also seemingly in turmoil at the moment investors may not know which way to turn.

But the AREF figures also show a healthy inflow of money into property funds with around £1.1bn being invested during the second quarter of this year.

AREF chairman Nick Cooper, who works for ING, said: “The message I’m trying to get out is that it’s not doom and gloom as a lot of people, perhaps the uneducated, may have suggested.”

Last month New Star’s head of global property, Stuart Webster, also sought to play down fears of a crash insisting commercial real estate was still a solid long-term investment.

“Commercial property gets peaks and troughs. If interest rates have gone up, then it is a challenge.

“We don't expect property to crash, but I'm not saying there will not be some falls in some areas where there has been explosive growth.”

tonymcdonough@dailypost.co.uk