Alternative Assets

24 Jan 2020

Headlines in the real estate sector continue to be made mostly by the poor health of retailing, with further evidence of store closures and tenant pressure for rent reductions.  In the run-up to the UK election consumers were also watchful about expenditure levels and even the usual Black Friday sales appeared to prompt lacklustre responses.

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This led to the valuations of retail real estate remaining under significant downward pressure with falls of around 10% being recorded since the start of 2019.  The valuations of other segments of commercial real estate did not suffer any such declines, with office assets squeezing out a fractional increase while industrial and logistics assets maintained their previous stance as the strongest performers.
 
Institutional investors continued to shift the balance of their property portfolios away from retail assets (which still represent close to 30% of the universe) but with limited success as transactional volumes declined ahead of the election.  These difficulties led to M&G suspending dealings in their daily-traded £2.5bn property fund during the quarter, but did not precipitate a cascade of similar reactions in the way that followed the 2016 referendum outcome.
 
All other UK property unit trusts remained open as usual and the share prices of the stock market listed property vehicles suffered only a very temporary hit before staging a recovery in the wake of the election outcome.  The most resilient performers were found mainly in the specialist funds, whose underlying assets were regarded as being minimally sensitive to economic concerns, such as healthcare, student accommodation and social housing, whilst funds that owned logistics assets such as warehouses proved to be the best in the economically sensitive segment.

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