Gerry Frewin, manager of the £1.6bn Threadneedle UK Property Authorised Investment fund, has warned Central London is the most volatile part of the UK property market, pointing to high valuations, oversupply and the continued uncertainty surrounding Brexit.
Speaking to Investment Week, Frewin said he does not own a single property in Central London, adding there would need to be a major fall in valuations for him to consider moving back in.
In particular, the manager highlighted the City as the key area in Central London where the impact of Brexit would be felt the most as the ongoing tensions continue to hamper business sentiment.
According to EY Financial Services' October Brexit tracker, 35% of the 222 UK financial services firms tracked have said they are considering or have confirmed they are relocating operations and/or staff to Europe, while it is estimated over 2,500 new Brexit-related jobs have been or are in the process of being created by financial services firms across Europe since June 2016.
"Uncertainty around Brexit means business uncertainty around the decision of whether to relocate or not," Frewin said. "The main impact of Brexit will be felt on Central London offices, especially in the City."
"It is no surprise that we have no Central London [in our portfolio]," he continued. "When you look at Central London at the moment, it has very high rents and very low yields which is an accident waiting to happen."
Brexit, Frewin said, remains "the elephant in the room" for property, which is part of the reason why he is holding historically high cash levels. The fund currently has 15% in cash, having started the year with 10%, as he waits to take advantage of market mispricing.
"There is uncertainty about what anything is worth, meaning there are less players in the market," he added. "If there are fewer feeders at the trough and we have got a higher cash position then we can take advantage of an opportunity if it presents itself."
In October, the Financial Conduct Authority (FCA) launched a consultation on new rules to protect investors in open-ended funds investing in illiquid assets.
Like the majority of open-ended property funds, Columbia Threadneedle was forced to suspend trading on its vehicles following increased outflows after the UK voted to leave the European Union in June 2016.
While the FCA said it was pleased that suspensions worked as they were intended to and prevented wider market disruption, with dealing in the affected funds resumed by the end of 2016, the regulatory body admitted improvements could be made "in the use of certain liquidity management tools, contingency planning, oversight arrangements and disclosure to retail clients".
Frewin said it was crucial to have alignment across the entire property funds space, since during the suspensions there were some funds that moved to the weekly valuation and some that did not.
"It is in the interest of our investors to suspend the fund during another shock," he continued. "There is now a joined-up way of thinking across the sector which will benefit investors.
"What is extremely important is one should always carry additional liquidity during times of uncertainty."
According to FE, the fund has returned 11.9% over the past three years, versus 14% for the IA UK Direct Property sector, as at 19 November.