Premiums fall for secondary trades in UK property

The combination of more modest returns, a rise in the number of sellers and general profit-taking is leading to reductions in premiums being paid for secondary trades in UK property vehicles.

Premiums are falling for UK secondary interests in property-owning vehicles in most real estate sectors except for central London offices, according to global asset management company Schroders.

Michael Clarke, head of property distribution at Schroders Property Investment Management, said: “During the first half of 2007 there has been a rise in the number of sellers as some investors seek to meet commitments outside the UK or to crystallise profits after a period of very strong returns. This, coupled with the more modest total return forecasts for UK property over the next three years, has caused premiums on secondary transfers to reduce across most sectors.”

The firm reports it has traded more than £285 million (€420.98 million; $580 million) worth of units in its own and third-party property funds during the period. In addition to trading in Schroders funds, it has placed £30 million worth of units in the Henderson Retail Warehouse fund as well as a further £55 million of other third party funds.

Evidence of a slowdown in UK property emerged at the end of last week when the Investment Property Databank (IPD) said equivalent yields, reflecting the ratio of rents to capital value, have risen for all UK property for the first time in six years.

Retail property seems to be affected most. Angela Sheahan, research manager, said: “Although all property month-on-month returns remain flat, for the first time in six years we have seen equivalent yields move out. While the rental growth in offices counteracted the outward yield movement, retail saw capital values fall in June.”

As if to underline the trend of investors looking to redeploy capital from the UK to overseas markets, fund manager Henderson announced today the launch of a $1-billion fund targeting Asia.

The Henderson Asia Pacific Indirect Property Fund or “Pagoda” will offer investors the chance to invest in a pooled fund with both closed-ended and open-ended sub-funds.

It aims to deliver 12 percent annual returns by investing in Australia, Japan, New Zealand, Singapore, Hong Kong, India China, Vietnam, South Korea, Malaysia, Indonesia, Thailand, the Philippines and Taiwan.

“With over 3.5 billion people, the area contains more than half of the world’s population. Of the 100 most populous cities in the world, 64 are in Asia.” said Chris Reilly, head of Henderson Property in Asia. “Despite this, the Asian property market remains relatively immature and it is this dynamic that provides a wealth of property investment opportunities.”

CBRE Investors, the fund management arm of the world’s biggest property services firms, Richard Ellis, is another fund manager currently raising equity to cater to investors looking overseas.

It has raised over €670 million for three funds. It has teamed up with Halverton for the Benelux Industrial Partnership which is investing in multi-let industrial property in the Netherlands and Germany, and has held first closing on Global Real Estate Fund of Funds as well as completed fundraising for its semi-open Alpha fund targeting Continental retail and industrial real estate.

Managing director Jeremy Plummer said: “As the UK property market prospects continue to flatten, there is a clear and growing trend for institutional investors to invest more of their property portfolios internationally.”