Wellian Weekly 24.08.2020

Property Update

The UK Direct Property sector hasn’t been open to investors for five months now, and you would be forgiven for thinking there may not be much to report back during this time, but property managers’ efforts are now beginning to bear fruit. 

As the summer has progressed, we have seen growing signs of the property market opening up again, with property deals beginning to come through. This is a welcome development for the UK commercial property sector as a growing body of transactions is what is needed to underpin the valuations attached to individual properties and give greater confidence in the pricing on property funds. The entire sector suspended (with the FCA’s blessing) in March when the impact of the coronavirus restrictions hampered the functioning of the market, with property valuers unable to assign values to properties with the usual level of confidence. Since then we have seen some property deals complete, mostly in those sectors least affected by the virus, and a gradual reopening as the ‘material uncertainty clause’ has been removed on a sector by sector basis. 

There is still some way to go, but looking at funds in the peer group, some may now have the green light on close to 80% of assets, paving the way towards re-opening in the coming months. The removal of the material uncertainty clause is the first hurdle to clear for funds looking to re-open, with other stakeholders feeding into the process before the suspension is lifted. In the meantime, property management teams have been working to collect rent and maintain the income streams for the funds. With large numbers of tenants requiring adjustments to their usual arrangements, the importance of property management has come to the fore.

Away from the day-to-day management of the property funds, the FCA has now launched its consultation to look at the liquidity mismatch between property funds that offer daily dealing, despite the underlying physical properties taking months to transact. It is not the first time the regulator has consulted on the topic, although the timing of the latest consultation has raised some eyebrows, creating further uncertainty at a time when the funds are currently suspended. 

However, we have welcomed the opportunity for Wellian to contribute to the debate and it’s encouraging to see the regulator recognising the challenges that fund suspensions can create in meeting client requirements and the practicalities of managing portfolios. In a world with low interest rates, income can be scarce and in the past commercial property has proved to be both an excellent source of income and a useful portfolio diversifier. With a large proportion of the sectors assets being held via the investment platforms, the participation of the platforms in finding a solution will be crucial, but changes that allow property funds scope to be more fully invested would be excellent news for investors - potentially offering higher income and better value for money.     

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