The UK property market is headed for a 2020 recession due to its high correlation with the economy, according to fund managers and property valuers, only adding to the woes of property investors who have found their money trapped in gated open-ended vehicles for over a month.
Since 18 March, more than £10bn of investors' money has been locked in open-ended UK property funds (PAIFs) following the introduction of a Material Uncertainty Clause (MUC) by property valuers, which meant they were unable to ascribe a value to physical property amid unprecedented levels of economic uncertainty.
In a monthly update last week, most PAIF managers released statements announcing the funds will remain suspended indefinitely, due to continued valuation uncertainty.
Mike Roberts, head of UK property at Canada Life Investments, whose property funds have been deferred since late March when both the firm and its ACS issued a 185-day notice period for redemptions, said they are expecting a recession to lead to a slow recovery from "2021 onwards", with its shape and duration dependant on when industries can reopen.
He added it could take the property sector years to return to positive growth, given it will be hampered by "inevitable business failures and consolidations".
Nick Knight, head of UK valuations at CBRE, which provides independent valuation services for many property funds, also believes the UK property market is set for a recession this year, with the asset class reflecting the weak economy and suffering from low liquidity and transaction values.
Ruli Viljoen, head of manager selection services at Morningstar IM Europe, believes the recession in residential and commercial property is "likely well underway or at least imminent".
She added that, in terms of the fate of open-ended property funds, "it is difficult to grasp what actions you should be looking to take when you do not know what your assets are worth."
Jonathan Bayfield, head of research UK & RoI real estate at Aviva Investors, which suspended its property fund on 18 March, said it could be a struggle for property fund managers to generate income streams "as occupiers fail to generate sufficient revenue to make rental payments and, in extreme cases, sustain their businesses".
However, Emma Clarke, head of fund research at Beaufort Investment, which is maintaining its multi-manager funds' exposure to physical property until it sees greater clarity from independent valuers, said the firm's underlying fund managers are attempting to renegotiate rental payments from tenants, such as moving from quarterly to monthly payments.
In addition, she said a number of managers are using suspension as an opportunity to "develop their assets" and "add value for the future".