Business | Property
Flicker of hope in property
Signs of life are beginning to return to the beleaguered commercial property fund sector with investment flows starting to turn positive after months of heavy outflows.
- By Ruth Sullivan, Financial Times
- Published: 00:38 March 29, 2008
Signs of life are beginning to return to the beleaguered commercial property fund sector with investment flows starting to turn positive after months of heavy outflows. The hope is that valuations may be bottoming.
Real estate funds across Europe, the US and Asia have attracted net inflows of $893 million (Dh3.28 billion) over the past four weeks, according to data from EPFR Global, which tracks global investment flows. Fund outflows, which totalled $15.6 billion between May and December last year, have slowed to $448 million so far this year.
In the UK property investment market, which saw a rapid downturn and sharp correction of values last year, fund managers are seeing a glimmer of hope. New Star Asset Management, which was hit by its exposure to property and issued a profit warning after poor performance in some of its funds in January, said there were signs of positive change.
"The net outflows we experienced at the end of last year have calmed down and slowed significantly and the inflows are increasing," said Marcus Langlands Pearse, director of UK property.
Mark Skinner, sales and marketing director at New Star, added: "We have seen outflows from our UK Commercial Property Fund slow to £2 million a day in January and early February, compared to £5 million in December, and they are now down to the hundreds of thousands [pounds sterling]. There are still a lot of buyers around who see value in the sector."
The UK Investment Management Association said outflows from UK property funds slowed significantly between November and January.
Tempting prices
As of February, prices for UK commercial property had fallen by 14.7 per cent from their June peak, according to the Investment Property Databank Index, and valuations were beginning to tempt bargain hunters. "In the UK property arena we see the drop in prices but we see buying opportunities and we have clients interested in the sector," said Crispin Henderson, chief executive of Threadneedle.
Rob Martin, head of performance analysis and research at Legal & General Property, forecast a recovery in the second half of the year.
The sharp correction in capital values in the second half of 2007 and the start of this year has "resulted in value appearing in the UK property market witnessed by the activity of opportunity funds," he said. He expected the "fundamental attractiveness of the asset class" to reassert itself as the year progressed.
But some are still cautious with one fund manager warning it would still be necessary to "watch the effects of Bear Stearns on the vacancy rates of commercial property".
Flows into continental European funds have been more stable.
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