House of cards to crumble? Recession in the UK property market 'likely well underway'
Slow recovery 'from 2021 onwards' predicted
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.
Long-term prospects
Guy Glover, fund manager of BMO UK Property fund, which was suspended on 18 March, pointed out that one "unforeseen change" as a result of the pandemic-induced lockdown could be the "impact of home working on future office demand".
QuotedData's Richard Williams agreed, adding that another long-term theme could be an acceleration in online retail sales which could be negative for bricks-and-mortar retailers but positive for investors in warehouses.
"Another sub-sector that has fared well during the crisis is the healthcare property sector, where income is backed by the government," Williams continued. "Social housing companies such as Civitas Social Housing, where its income comes indirectly through the government in the form of housing benefit, has also fared well and has strong growth dynamics."
According to property valuers, the lifting of MUCs that contributed towards the suspension of PAIFs will be dependent on several factors, none of which are certain enough yet.
Charles Smith, chairman of valuation and advisory UK at Cushman & Wakefield, said different asset classes will have the MUC lifted at different times, with "central London offices, annuity-style investments and logistics" likely to see the earliest removals, while "retail, leisure and hospitality" could take longer.
CBRE's Knight explained clauses would be removed "when we see a greater level of investment trading return providing empirical evidence to benchmark valuations", but suggested there is "growing indication that a healthy level of long income investments will trade over the course of the next few weeks", which "could lead to the removal for the MUC for this sector".
When open-ended funds lift their trading suspension, FE fundinfo's research manager Charles Younes said they should be better-equipped to cope with potential investor redemptions, as many upped their cash weightings following their 2016 suspensions sparked by the UK's vote for Brexit.
"This now means they are in an advantageous position to meet redemptions should they come, and means they have firepower to buy cheap quality assets when they become available," he said.
"Unlike other industries, performance in the property sector often lags the wider economy and price discovery is delayed, so it is likely to be a full 12 to 18 months before we see the full effects."
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