Aviva has followed Standard Life in suspending trading in its commercial property fund to prevent investors rushing for the exit as the market cools.
It came as the Bank of England said it was monitoring the behaviour of investors in open-ended property funds, as one of the risks to financial stability in the UK.
The central bank also noted that foreign investment in the UK commercial real estate market fell by 50per cent in the first quarter of this year. Scottish agents and investors meanwhile say some deals have been put on hold due to political uncertainties, but most of the fall-out has so far been in the central London market.
Aviva blamed “extraordinary market circumstances” for freezing its £1.8billion fund, a day after Standard Life Investments cited “exceptional” conditions for the same decision on its £2.7bn fund. SLI said that unless selling was controlled, “there is a risk that the fund manager will not achieve the best deal for investors in the fund, including those who intend to remain invested over the medium to long-term”.
It said the suspension would end “as soon as practicable” and reviewed at least every 28 days.
Laith Khalaf, senior analyst at Hargreaves Lansdown: “The dominos are starting to fall in the UK commercial property market.....these managers will now be adding to the supply of commercial properties on the market, which is likely to put downward pressure on prices.
"oreign investors might be tempted in by the fall in sterling, but equally they may decide to steer well clear of an economy in limbo.”
James Watson, head of retail capital markets at Colliers International, said at last week’s launch of its midsummer report that Scotland would be “in no-man’s-land more than others because we have got two layers of complexity for investors to deal with”. Developer David Young commented: “We have been struggling in Scotland for quite a few years and were on the slow road to recovery, this is certainly not going to help.”
Danny O’Neill, founder of Ediston Real Estate in Edinburgh, commented yesterday: “There is a general consensus in the market from valuers and from investors that the decision to leave will have a negative impact on the UK property sector, it has been saying that for the past 18 months, but in the main it will be felt hardest in the city of London.”
He said Scotland was also experiencing a renewal of the uncertainty around the independence referendum, when many deals had an ‘indyref clause’, but added: “I don’t think that the potential impact on capital values will necessarily be worse in Scotland....Edinburgh has a resilient base and a strong economy. The basic question is what does it mean for economic growth.”
Iain Mercer, managing director of IME letting agents in the capital, said agents were reporting “deals falling out of bed and being pulled because of Brexit”, but added: “It is more of a delay, to see how the dust settles, rather than being killed stone dead.
"The fundamentals of the Edinburgh and Glasgow markets are still very strong, they have had their best year on record in terms of office take-up, investment levels are up, and for the first time Russian, Indian and Korean money is being invested in the Scottish property market.”
Jason Hollands, managing director at Tilney Bestinvest, said: “The uncertainty around Brexit is undoubtedly a challenge for the property sector but this is not a post Lehman Brothers style moment when the whole financial system faced collapse and the supply of credit - key to property transactions - was in doubt.”
Tom Stevenson, director of personal investing at Fidelity International, said: "The case for investing in commercial real estate is undoubtedly worse than it was for two reasons. First, Brexit could lead to a reduction in jobs in, say, financial services in London. That would obviously be a negative for property demand. Second, Brexit could lead to a recession; that, too, would be bad news.
“But the reality is that no-one really knows where property is headed over the next couple of years. If the pound remains weak, it is possible that foreign buyers will see UK property as a cheap safe haven."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here