Asian Investors Fear a Crash in U.K. Commercial Property

Plunging Pound

Plunging Pound

With the pound falling below $1.28 for the first time since 1985, both institutional and private investors across Asia with exposure to Britain have been growing increasingly nervous. Is there a risk of contagion?

The slide in the value of Sterling is thought in part to be due to a potential crash in commercial property prices after the Brexit vote. Of course the political vacum and ambiguous timing on the actual EU departure plans are not helping.   

In the past few days heavyweight asset managers Aviva, M&G and Standard Life Investments have all suspended trading on their U.K. property funds.

Capital Shortfalls

They have now been joined by Columbia Threadneedle, Henderson Global Investors, who also halted trading in its commercial property funds, and Canada Life who said it had suspended its Canlife Property and Canlife U.K. property funds.

Funds now face capital shortfalls as investors head for the exit. And with new commercial properties coming onto the market this in turn will dilute prices even further. 

Calm and Rational

London real estate, especially good yielding commercial property, has been a favourite safe haven for Asian investors. Sovereign wealth funds from Singapore and China coupled with institutional investors from Japan, Korea and Malaysia have all made substantial investments into British commercial property over recent years.

Many individual investors in the region who graduated up from the U.K. residential market are also leveraged into commercial real estate which was sold to them as a sound long-term secure asset.   

Aberdeen Asset Management CEO Martin Gilbert last week appealed for cool heads in the wake of the Brexit shock: «We owe it to them to remain calm and rational. The worst thing to do when markets are volatile is to panic,» he said.

 

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