British property investors are seeing signs of improvement in the market in the midst of heavy rental and capital assets, but both open and closed vehicles confront the rising struggle against portfolio blow-outs of the ongoing coronavirus pandemic.
According to the Investment Property Forum (IPF) UK Property Consensus Forecast, the total return offered by all UK properties is expected to contract 7.4% at the end of 2020 with a growth in average rental value and capital value expected to fall by 5% and 11.7%, respectively.
The IPF forecast the largest capital declines in retail, shopping and retail storage by 20.4 percent, 28.3 percent and 20.9 percent respectively.
Retail and shopping centers are also the worst hit for 10,8 and 13,4 percent respectively of retail values.
It is a difficult environment for open UK property funds which are now only beginning to suspend after the all-clear suspension was given in September by the Royal Institution of Chartered Surveyor’s recommendation that material uncertainty on the valuation of most UK property assets be “generally lifted.’
According to Investec, AEW UK REIT is the only investment firm with a 10.7% yield in this “extraordinary economic backdrop.”
However, according to the Association of Investment Companies, the trust is still trading at the NAV discount of 16.7 per cent.
Gerry Frewin, manager of Threadneedle UK Property, reopened on 17 September, said that in particular the second quarter of this year was ‘dominated by falls in capital and rental value,’ ‘inescapable problems in the rental income following state action.’
But “these trends seem to have subsided,” according to Frewin, as the economy has begun to adapt to the pandemic, with a rate of “significantly” decreased capital value.
In an October update to the UK real estate investment firm, however, Investec analysts pointed out that closed-end property funds “were far from immune to developments, with NAVs under pressure and many suffering from severe depreciation.”