AREF, the Association of Real Estate Funds, has launched its third Investment Quarterly ('AREF IQ'), which examines trends in the £60 billion (c. €82bn) unlisted property funds industry through the analysis of quarterly data provided by its 63 member funds, which represent £44.2 billion (c. €60.6bn) of NAV. It shows continued strong inflows of capital into unlisted funds, which are still amongst the strongest performers in the real estate sector.
Inflows
At £1.1 billion (c. €1.5bn), Q2 inflows raised are impressive, although they are lower than the funds raised in Q1. Inflows regularly fluctuate and, as the amount of money raised is still high in a long term historic context, this is not seen as a sign that the popularity of unitised funds is waning.
Significant demand for Authorised Property Unit Trusts ('APUTs') continued into Q2, reflecting the step-change in investment after regulatory changes made in 2006. Whilst overall PPF and APUT inflows have reduced, the proportion accounted for by AREF's seven APUT member funds actually rose from 63% to 65%.
Redemptions
Redemptions increased again in Q2 to £631 million (c. €866m). Importantly however, this represents just 2.7% of the offer value of the market and it appears that the majority of investors in unitised funds are investing for the long term. With secondary market trading increasing by £149.2 million (c. €205m) to £373.2 million (c. €512m) the sector is still highly liquid, showing a strong continued appetite for the asset class.
Additionally, the simple average bid offer spread rose negligibly from 6.0% to 6.1% in Q2, well below the level seen in the early years of this decade.
Pooled Property Funds
The pooled property funds ('PPF') sector is still performing strongly, with total returns beating the IPD quarterly index, property equities and bonds. Indeed, at 13.6% y/y PPF total returns were over a third higher than that of property equities at 9.2%. As predicted, returns have continued to ease gently, in line with the general investment market.
Specialist Funds
The report shows that the trends in the direct investment market were reflected in the returns of AREF's specialist funds. In the direct market there has been a divergence between the out-performing Central London office market and the underperforming retail market in Q2. Notably, out of AREF's 34 specialist funds, the six that delivered relatively weak, single-digit annual total returns were all retail specialists. The point should be emphasised however that even these funds produced positive total returns both for the quarter and the year.
Commenting, Nick Cooper, chairman of AREF, said, "The figures shown in the AREF IQ report represent the first definitive statement about what is actually happening in the unlisted property funds industry. Based on a huge and accurate sample of data, it enables us to see the true position of the market.
"Whilst these figures do appear to see a gentle cyclical slow down in the market, it is not one that was unpredictable. Inflows are still hugely impressive and, through the findings of this report, we see this as underpinned by investors' long term confidence in the asset class as a whole."
Source: Tavistock
