Property funds that are heavily exposed to the retail sector face an exodus of investors, according to Cohen & Steers’ head of Europe real estate Rogier Quirijns.
The ongoing and well-documented challenges facing the UK retail sector has led to a “rolling crisis” in real estate funds investing in high street properties, says Quirijns – and he urged the Financial Conduct Authority (FCA) to adopt US-style liquidity rules for the property fund sector.
Last year alone, around 6,000 UK stores closed down, according to the Centre for Retail Research. This figure was more than double the net closures in 2018.
Quirijns said: “If physical property funds were to witness sharp write-downs due to the present retail carnage, we could be on the precipice of a fourth major investor exodus from open-ended direct property funds in the span of a decade.”
According to the senior portfolio manager, this is only the tip of the iceberg. If the FCA doesn’t take action, he warned that investors may need to reconsider allocations to retail-heavy UK-focused physical property funds.
“In our view, the FCA must consider the example of the US, where open-ended ‘bricks and mortar’ property vehicles only allow redemptions monthly or quarterly – while daily-dealing open-ended mutual funds have strict limitations on illiquid holdings. Until this happens, we feel further redemption suspensions are inevitable,” he said.
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