Jupiter Asset Management chief executive Edward Bonham Carter says he is still wary about the fundamentals of the UK commercial property sector.
He says despite there being more optimism in the sector, it is important to recognise that rents are still falling in a number of areas while vacancy rates are rising. He says optimism is being fuelled by foreign investors going into the sector because of a combination of the fall in sterling and the underlying property price plunging by 30 to 40 per cent.
Bonham Carter says: “You are ending up with a 50 per cent price cut which obviously is an attraction to investors.”
But he says investors should not forget the lessons of the credit crunch, where too much money went into illiquid assets such as property. He questions whether illiquid assets like commercial property should only be allowed to sit in closed-ended vehicles.
He says: “We saw how property suffered in the credit crunch. You can always buy property shares or Reits so there is plenty of choice but the problem is that managers can have a big cash drag effect in property. In rising markets, they are slow to invest money, which drags returns, and in bear markets they do not have enough cash and have to gate their funds, which is what happened.”