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01 October 2023

Institutional funds pump record £3.2bn into UK commercial property in Q4

The speed of the recovery has led to fears that there will be a second dip. (AP)

By Staff Writer

Institutional property funds put a record £3.2 billion (Dh18.3bn) into United Kingdom commercial real estate in the fourth quarter of 2009, said the Association of Real Estate Funds, according to The Financial Times newspaper.

Official figures from the Association of Real Estate Funds show (AREF) that UK unlisted pooled property funds attracted £2.9bn in the fourth quarter on a net basis, much higher than the £400 million raised in the third quarter.

The sudden influx of new capital from institutional investors reflects the wider shift in sentiment towards UK commercial property, which has seen a bounce in pricing since last summer after almost halving in value. Retail investment funds have also seen record amounts raised to invest in commercial property.

John Cartwright, AREF Chief Executive, told the newspaper: "Last year was a volatile year, but it ended on a positive note with record new money coming in to the funds, as well as the final quarter showing extraordinary growth in returns.

"This marks the second quarter of positive net sales, signalling the resurgence in popularity for property funds. Interestingly, while retail investors remain active, we have also seen significant new money from institutional investors who tend to have longer-term investment horizons."

However, the speed of the recovery – which has seen capital values grow by 10 per cent in six months – has led to fears that there will be a second dip in values.

These fears have been exacerbated by weak fundamental reasons to invest in real estate, with rents under pressure. Analysts said these reasons, in addition to pressure from the end of the Bank of England's quantitative easing scheme, may have meant that the "easy money" from the bounce could have been made.

Fund managers, however, said they are investing for the longer term, typically for more than five years, meaning a further dip would not be a disaster.

AREF said the net asset value of the sector had reached £25.2bn by the end of last year, down from £26.2bn the year before.

Gross sales for 2009 were £4.5bn, up from £567.3m in 2008, while net inflows were £3.2bn, a reversal of funds, given net outflows in 2008 of £224.2m.


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