Commercial property rarely makes for mainstream headline news and we’re thankful lfor that as we quietly get on minding our own and our clients’ business. We occasionally stick our head above the parapets at either end of the year with the annual round of reviews and forecasts but that’s about it.
At the outset of this year, commercial property professionals and pundits were in broad agreement that yields had most definitely peaked and that the volume of transactions we’d been enjoying were unsustainable and that total returns were set to fall – my own firm pegged the fall to 8.8 per cent. So far so predictable in Q1 and Q2 2016 then.
However, before the third quarter of the year had properly got underway, commercial property came crashing in to mainstream media headlines for five days in a row and not in a good way. I say ‘commercial property’ but what actually made the news was the suspension and closure of a number of funds which were invested in commercial property.
It was the funds that were falling down, commercial property is still standing. Alongside other property interests, thankfully. Expert property commentators and analysts were - and still are - at pains to point out that a commercial property fund is an investment vehicle and one not for the faint-hearted either. In the close world of any niche investment funds, it is easy for contagion and a herd mentaility to take hold.
Investors in all sorts of funds are getting spooked and some of those whose portfolios include commercial property funds are wanting to liquidise their investments and move on to other funds and other asset classes. Commercial property investment fund managers were left with little option but to suspend the funds while they sell the asset. It can take a long time to sell an office block, business park or a retail outlet, believe me.
The thought of Brexit has, understandably, made many people twitchy – just look at the pre-poll rock solid political careers it has ended but now some new careers have begun too. While the matter of the prime ministerial succession and the timescale has been settled earlier than first assumed, the financial markets reacted to uncertainty.
In those first weeks post-24 June along with the value of sterling falling, FTSE companies most exposed to UK business interests saw their share price drop more than those with more international exposure. There was much mention of housebuilders’ shares falling as if this was proof of a mass property Brexodus.
To make a connection between the closing of commercial property investment funds and a potential housing market crash á la 2009 is crass but some reporters whose business is not, ordinarily, the reporting of business can be forgiven in not appreciating the very clear distinction between commercial property and residential property.
Investors in the housing market in the UK are, in the main, those who live in their investment. The forces driving commercial property investment funds are very different from those governing the housing market, namely a fundamental shortage and a low interest rate environment in the case of the latter.
The economic and financial expert view is that whereas the credit crunch of 2008 and 2009 was a financial crisis with political ramifications, what we are experiencing now is quite the reverse.
Setting aside on what the actress Mrs Patrick Campbell was commenting when she said it, I am minded to agree with her when it comes to the present situation: “My dear, I don't care what they do, so long as they don't do it in the street and frighten the horses.”
At the outset of this year, commercial property professionals and pundits were in broad agreement that yields had most definitely peaked and that the volume of transactions we’d been enjoying were unsustainable and that total returns were set to fall – my own firm pegged the fall to 8.8 per cent. So far so predictable in Q1 and Q2 2016 then.
However, before the third quarter of the year had properly got underway, commercial property came crashing in to mainstream media headlines for five days in a row and not in a good way. I say ‘commercial property’ but what actually made the news was the suspension and closure of a number of funds which were invested in commercial property.
It was the funds that were falling down, commercial property is still standing. Alongside other property interests, thankfully. Expert property commentators and analysts were - and still are - at pains to point out that a commercial property fund is an investment vehicle and one not for the faint-hearted either. In the close world of any niche investment funds, it is easy for contagion and a herd mentaility to take hold.
Investors in all sorts of funds are getting spooked and some of those whose portfolios include commercial property funds are wanting to liquidise their investments and move on to other funds and other asset classes. Commercial property investment fund managers were left with little option but to suspend the funds while they sell the asset. It can take a long time to sell an office block, business park or a retail outlet, believe me.
The thought of Brexit has, understandably, made many people twitchy – just look at the pre-poll rock solid political careers it has ended but now some new careers have begun too. While the matter of the prime ministerial succession and the timescale has been settled earlier than first assumed, the financial markets reacted to uncertainty.
In those first weeks post-24 June along with the value of sterling falling, FTSE companies most exposed to UK business interests saw their share price drop more than those with more international exposure. There was much mention of housebuilders’ shares falling as if this was proof of a mass property Brexodus.
To make a connection between the closing of commercial property investment funds and a potential housing market crash á la 2009 is crass but some reporters whose business is not, ordinarily, the reporting of business can be forgiven in not appreciating the very clear distinction between commercial property and residential property.
Investors in the housing market in the UK are, in the main, those who live in their investment. The forces driving commercial property investment funds are very different from those governing the housing market, namely a fundamental shortage and a low interest rate environment in the case of the latter.
The economic and financial expert view is that whereas the credit crunch of 2008 and 2009 was a financial crisis with political ramifications, what we are experiencing now is quite the reverse.
Setting aside on what the actress Mrs Patrick Campbell was commenting when she said it, I am minded to agree with her when it comes to the present situation: “My dear, I don't care what they do, so long as they don't do it in the street and frighten the horses.”
Will Mooney MRICS
Partner
Commercial, Cambridge
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