Flicker of hope in International property funds

Posted On Tuesday, 25 March 2008 02:00 Published by
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Signs of life are beginning to return to the beleaguered commercial property fund sector with investment flows starting to turn positive after months of heavy outflows. The hope is that valuations may be bottoming

Real estate funds across Europe, the US and Asia have attracted net inflows of $893m (£450m, €570m) over the past four weeks, according to data from EPFR Global, which tracks global investment flows. Fund outflows, which totalled $15.6bn between May and December last year, have slowed to $448m so far this year.

In the UK property investment market, which saw a rapid downturn and sharp correction of values last year, fund managers are seeing a glimmer of hope.

New Star Asset Management, which was hit by its exposure to property and issued a profit warning after poor performance in some of its funds in January, said there were signs of positive change.

"The net outflows we experienced at the end of last year have calmed down and slowed significantly and the inflows are increasing," said Marcus Langlands Pearse, director of UK property.

Mark Skinner, sales and marketing director at New Star, added: "We have seen outflows from our UK Commercial Property Fund slow to £2m a day in January and early February, compared to £5m in December, and they are now down to the hundreds of thousands [pounds sterling]. There are still a lot of buyers around who see value in the sector."

The UK Investment Management Association said outflows from UK property funds slowed significantly between November and January.

Norwich Union, which manages the Norwich Property Trust, a £2.6bn open-ended fund, said it was "a lot more optimistic about the sector than three to four months ago".

"The situation is stable and redemptions are now running at about a twentieth of the level in December," said a spokesman, who argued that the threat of the fund needing to suspend withdrawals was receding, helping it report inflows this month.

As of February, prices for UK commercial property had fallen by 14.7 per cent from their June peak, according to the Investment Property Databank Index, and valuations were beginning to tempt bargain hunters.

"In the UK property arena we see the drop in prices but we see buying opportunities and we have clients interested in the sector," said Crispin Henderson, chief executive of Threadneedle.

Rob Martin, head of performance analysis and research at Legal & General Property, forecast a recovery in the sector in the second half of the year. The sharp correction in capital values in the second half of 2007 and the start of this year has "resulted in value appearing in the UK property market witnessed by the activity of opportunity funds," he said. Mr Martin expected the "fundamental attractiveness of the asset class" to reassert itself as the year progressed.

But some are still cautious with one fund manager warning it would still be necessary to "watch the effects of Bear Stearns on the vacancy rates of commercial property".

Flows into continental European funds have been more stable and investors have not rushed to redeem as in the UK. "People are more comfortable [with their investments] and we haven't seen significant outflows," said Ben Stirling, head of European property at Morley.

New Star's International Property fund, which invests outside the UK and the US, has seen positive net inflows on a daily basis since its launch in July.

Lipper Feri, the fund research group, estimated net outflows from open-ended regulated property funds across Europe eased to €291m in January from €1.4bn in December.

The scent of opportunities is also triggering a wave of new property funds from groups such as Stenham, Apollo, GPT Halverton, Rockspring and Orchard Street Investment Management, which has teamed up with GIC Real Estate to create a fund to invest in UK commercial property.

Publisher: Financial Times
Source: ft.com

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