Just back from a Standard Life Investments property seminar.
They’re pushing their commercial property funds despite awful performance, oversupply/falling rents and not investing in residential despite massive under supply and the [genuinely excellent] speaker himself being outbid recently on three houses.
The explanation for buying commercial was that rental inflation was likely to turn positive in 2011 when supply dried up. This despite the in-house view being that rents still had a long way to fall, their example (in the City) being:
– £67.5 psf in Q4 07
– £45psf currently (33.3% decline)
– £32.3psf (28.5% further to go)
This is without factoring in yield expansion, tenant default risk and the massive rent-free periods (the speculation is that Nomura got 4 years for free on their recent transaction in the city). Interestingly London’s rents have dropped first while rents in regional cities are expected to collapse very soon. It always surprises me how predictable the ripple effect from London is both on the way down and the way up – markets tend to price these things in once they’ve learned them but this particular characteristic (which influences the Location, Location, Location saying) endures countless cycles.
Actions speak louder than words methinks & all actions/evidence says London residential to me.
It never ceases to amaze me how institutional investors can be so focused on ‘traditional’ investments (IMO this can be freely translated to ‘hassle-free management’) to the point where they completely ignore one of the largest and most profitable investment sectors in the UK.
Any IFA intermediaries interested in property can contact me if they would like to know about available residential property funds – for example the Urban Share student fund is ready to take advantage of forecast continued growth in student accommodation rents and massive supply/demand imbalance that existed before the credit crunch and has been compounded by it.
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