Aviva Investors Property Trust (GB00B7RBQM86) has told its investors they may not be able to take their money out of the fund for at least six to eight months, due to the time it takes to sell commercial properties. Aviva Investors Property was one of several open-ended commercial property funds that suspended investor withdrawals following the vote to leave the European Union (EU) at the end of June. The funds did this because they did not have enough readily realisable assets to meet the high level of redemption requests.
"This is a big blow to investors in the Aviva fund, who are basically now being told they won't be able to get their money out any time in 2016," said Laith Khalaf, senior analyst at Hargreaves Lansdown. "The wider question is whether this timeframe applies across the rest of the sector."
The other funds which have suspended investor withdrawals have not indicated when they will allow this again.
UK private investors' trading of property funds was 900 per cent higher following the vote to leave the EU compared with the same period last year, according to online investment platform rplan.co.uk, with outflows 12 times larger than inflows.
And the IPD UK Monthly Property Index reports that total return in July fell to -2.4 per cent compared to 0.2 per cent in June, with capital values depreciating by 2.8 per cent.This was the greatest fall since March 2009 when the index registered a capital value decline of 3.1 per cent.
"The July decline, coupled with the decline of 0.3 per cent in June, indicates that the market is formally in recession post-Brexit referendum as weak investor sentiment hits yield pricing," said Colm Lauder, vice president at index provider MSCI. "The UK market, especially in London, had been keenly priced in the run up to last month's vote, with yields in the British capital city at historic lows and income returns among the least competitive in Europe. The record pricing in the real estate market could leave little room to buffer economic or political shocks such as Brexit, with values potentially falling further as occupier sentiment weakens."
However, Aberdeen UK Property Fund (GB00BTLX1G31) and Aberdeen UK Property Feeder Unit Trust (GB00BTLX1Q39) have revised up the fair value adjustment on their portfolios to minus 5 per cent from minus 7 per cent - the level which had been in effect since 6 July 2016. These funds were suspended between 6 and 13 July and reopened with a price dilution of 17 per cent, though that was reduced to 1.25 per cent at the end of July - the level in place before the EU referendum.
"There is further evidence that calm and order are being restored to the UK commercial property market," said Martin Gilbert, chief executive of Aberdeen Asset Management. "The impact of the vote to leave the EU is being felt most in the central London office market, which the portfolio has little exposure to, whereas the retail and logistics markets are holding up relatively well along with longer-leased properties and those less dependent upon future rental growth. The quality of our holdings has allowed us to re-assess the fair value adjustment we are applying in the light of further emerging evidence.
"Of course, the situation remains very fragile so we will remain watchful and act accordingly in the interests of all our underlying investors."
Meanwhile, analysts at Whitechurch Securities, said the longer-term impact of Brexit on the market will take time to emerge, but do not believe there will be a hard landing.
"In previous hard landings there have been increasing levels of debt, weak demand and over-supply," they stated. "However, UK commercial property has a high correlation to the strength of the domestic economy, and although we believe that supply/demand dynamics and relatively attractive yields will avoid a significant sell-off, the short- to medium-term outlook is uninspiring."
