Multi-manager opinion: What is the outlook for property?

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Richard Philbin is chief investment officer of Wellian Investment Solutions

WEB_DecJan_Philbin, RichardIn a post-Brexit world, it is inevitable that some companies will move some of their assets away from the UK into Europe, although this is unlikely to be the start of an ongoing trend or mass exodus away from UK property. The fact of the matter is that there is still so much uncertainty in the market, meaning investor sentiment will remain cautious.

That said, London will continue to retain its status as a global city, where land is at a premium and therefore demand will always be relatively sustained. Many companies will continue to use the UK as their base for developing into Europe as we have the central business language for the global market as well as strong labour laws and a robust legal system in place. George Osborne has also announced plans to reduce corporation tax over the next few months, which could actually act as a stimulus to new business growth.

Therefore, although Brexit may cause property prices to fall slightly in the short term, there will be many overseas investors who will recognise the opportunities.

Currency movements alone have made property significantly cheaper and increased its attractiveness to investors on a global scale, therefore we are not overly concerned about the longer-term outlook for the sector.

Some fund houses have decided to monitor their valuations on a weekly basis following Brexit but this is likely to be a short-term, precautionary measure.

James Horniman is portfolio manager at James Hambro & Partners

Horniman-James-2016Since the Brexit result came in we have seen a number of big commercial property funds anticipating redemptions. Quite a few have down-graded net asset values by around 5 per cent and have also made it harder to sell by increasing spreads or by suspending redemptions.

One of the keys to what happens next is interest rates. If they come down it will help leveraged vehicles, but perhaps more importantly indicate that the Chancellor’s warnings of recession have come to fruition, which would not be good for occupancy and rent reviews. Nor would that be good for the domestic sector – there is not much further rates can fall that one would expect the recession triggering a move to be of far more consequence than householders saving a few pounds each month on existing or prospective mortgage payments.

The market clearly feels the same way – housebuilders such as Taylor Wimpey saw their share price plunge by around 30 per cent in the wake of the result. The international demand for prime London property may remain strong, but elsewhere in the marketplace we see only uncertainty.

We have taken property right down from typically 5 per cent of multi-asset portfolios, selling shares in direct property companies and commercial property funds. There are methods of gaining international property exposure and this would be our preferred route.

Lucy Walker is fund of funds manager at Sarasin & Partners

Walker, Lucy_700x450The news that Standard Life, Aviva, and a number of other funds have suspended redemptions on their daily dealing property funds is likely to be self-fulfilling. There are undoubtedly parallels to 2008, when press reports suggested Northern Rock had run out of cash, which ultimately did culminate in the bank becoming insolvent.

Since Brexit, we have seen funds across the sector cut prices to bid, at an average of 5 per cent, but clearly this has not discouraged investors from redeeming further. Property funds that trade daily have always faced a liquidity mismatch, and to counter this have historically held more cash and listed real estate to provide some liquidity.

These liquidity reserves are quickly being depleted, meaning funds are having to gate investors. Unfortunately this means those funds very publicly become forced sellers, which will inevitably hit valuations across the sector, and this is likely to hit investor confidence further, hence the vicious cycle.

It will be key to watch rental demand, because if that is hit through a broader lack of confidence, this would impact income generation for the sector – a key reason why many investors allocate. One bright light is a weaker sterling makes UK property an attractive  investment for overseas investors. At present, we have no exposure to daily dealing funds and prefer funds with a low exposure to London, with minimal gearing.