Pension funds invest in UK property
GLOBAL - Pension funds have been returning to the UK property market in the wake of improving returns after the asset class lost almost half of its value in two years, industry figures said.
According to data released by Association of Real Estate Funds (AREF) UK unlisted pooled property funds raised £3.2bn (US$5bn) of new money in the last quarter of 2009, which represents the highest value 1998.
AREF chief executive John Cartwright said: "This marks the second quarter of positive net sales, signaling the resurgence in popularity for property funds. Interestingly, whilst retail investors remain extremely active, we have also seen significant new money from institutional investors who tend to have longer term investment horizons."
Foreign pension funds and other institutional investors make up the largest part of inflows into UK property.
Aviva Investors Client Portfolio Manager for Real Estate Phil Ellis said in the last five to six years there has been a growing globalization of property markets with non-UK pension funds increasingly looking at UK property.
He added: "When foreign investors are looking at the UK market they see that it is the one which has been most rapidly and severely affected. Between June 2007 and June 2009 it fell by 44%. With the initial signs of recovery, investors started to consider it attractive from the point of view of a long term investment."
Prupim senior analyst Richard Gwilliam agreed. He said Norwegian, Australian and Canadian pension funds have been targeting the UK's "core prime stock" - London's West End property.
He added the weakness of the British pound against major currencies made the asset class even more attractive to foreign investors.
Data from the Investment Property Databank (IPD) showed the return to positive capital growth - a cumulative 9.8% over the second half of 2009 - was sufficient to lift the annual total returns to 3.4%, including a final quarter 10% total return.
ING Real Estate chief executive Kevin Aitchison said: "Currently yields are positive - a big signal to buy which has been acted upon - but this is arguably because there is nowhere else investors feel comfortable putting their money. As a result, insurance companies and pension funds have been increasing their allocations to real estate."
However, P-Solve head of asset management Paul Kemmer said UK property void rates are still very high, which makes the asset class not particularly attractive for pension funds.
He added: "We think it is too early now for UK property. Economic growth is essential for property recovery and the latest data on the UK is suggesting an anemic recovery, at best."
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