The UK’s five largest property funds stand to risk billions of pounds invested in the country’s struggling retail sector.
According to the Financial Times, the ongoing retail crisis is reportedly predicted to see retail properties in the UK drop by 20 per cent in value by the end of next year.
This would mean the collective exposure of the UK’s five largest property funds, including M&G Property Portfolio, L&G UK Property, Standard Life UK Real Estate, Janus Henderson UK Property PAIF and Aberdeen UK Property would stand at £4 billion.
According to a recent report by asset manager Fidelity International on the state of the UK’s retail real estate sector, property values are set to dive between 20 and 70 per cent, driven by a 10 per cent to 40 per cent reduction in rents to make them more appealing to retailers.
It added that around 41 per cent of UK non-listed real estate portfolios are made up of retail assets, leaving huge swathes of their multi-billion estates at risk. This compares to around 25 per cent in other key retail markets.
This was supported by analysts at Jefferies who predicted general retail property values to drop 20.4 per cent throughout the next year, including an 18.7 per cent drop in retail warehouses.
Meanwhile, analysts from Barclays have predicted an 11.4 per cent drop in retail property values next year, and a further 10.8 per cent drop the year after.
Although leading property funds are still delivering positive returns for the time being, potential investors are growing increasingly cautious about investing in the UK’s retail property market.
Furthermore, the growing number of retailers entering into a CVA, which can force landlords to significantly reduce their rents, is starting to eat away at capital values and encouraging property funds to offload assets likely to succumb to insolvencies.