With equities and bonds rallying in the aftermath of the EU Referendum result, UK commercial property investments experienced a series of disappointing results. This was brought upon by both downward re-pricing and ultimately, trading suspensions on open-ended funds and corrections in the close-ended property vehicles.
By James Thompson, Taylor Patterson.Negative sentiment was a key driver of these actions as investors were forecasting reduced economic growth and potentially greater vacancies, especially London office space. The market also saw shorter-term investors take the opportunity to realise the strong gains built up in this asset class over recent years.
The investment markets have seen this action before, during the financial crisis and investors should understand that commercial property is inherently illiquid and valuations subject to opinion, which can lead to dramatic actions during periods of economic stress and uncertainty. However, our investment strategy is focused to a greater extent on medium to longer term market returns and our financial planning strategies ensure that investors have sufficient liquidity and capacity to take on this type of risk.The main target for investors in UK commercial property is an expectation of a consistent regular rental income and capital appreciation. It also acts as a strategic diversifier within our investment strategy, with returns generally uncorrelated to other portfolio asset classes.
After the panic induced by the outcome of the Referendum, the commercial property arena has regained some composure. The majority of the open-ended funds have announced that they will be re-opening, and the investment trusts which were adversely affected in the aftermath of the vote have recovered significantly.Not everyone thinks we are entirely “out of the woods” however, and Brexit uncertainties remain. The experience of seeing funds suspended and continuing Brexit fears does mean that we are reviewing our open-ended fund exposure and we continue to consider the suitability of close ended funds within our investment strategy. The key to the success of a suitable investment strategy is to consider a balanced portfolio, which is commensurate with your current goals and objectives, but which is flexible to adapt to changing needs and circumstances. Regular investment reviews are paramount in today’s quickly changing investment landscape.