Real estate investment funds investing in the real estate property fund sector have helped deliver above-inflation returns this year, data has found.
According to the Association of Real Estate Funds index, many funds have outpaced inflation – which in November reached a 41-year high of 11.1 per cent.
Topping the table (see below) in terms of returns was the Nuveen Real Estate UK Retail Warehouse Fund, which saw a 32.3 per cent rise over the past 12 months (percentage change), and a 24.6 per cent rise in its fund size.
Market analysis by one real estate fund, the Alliance Fund, has also revealed that the average property investor using real estate funds as an avenue of investment would have seen a return over 12 months to 10.9 per cent, which is the weighted average of funds in the index to end of Sept 2022.
We’re also seeing the evolution of this avenue of investment, with many challenger funds.
The UK’s most prominent funds have seen an approximate growth in fund size of 11.1 per cent on an annual basis.
Currently, the average fund size across 46 of the nation’s most established real estate funds sits at £1.27bn, with M&G Secured Property Income Fund sitting on approximately £4.67bn, according to Alliance Fund.
According to the chief executive of Alliance Fund, Iain Crawford, although all investments carry an element of risk, the average return provided when investing in a real estate fund has been robust.
He said: “To say the least, and the space is growing by the day to ensure investors have even further choice when investing.
“There are already some firmly established funds out there, but we’re also seeing the evolution of this avenue of investment, with many challenger funds bringing something new to the sector.”
Top 10 funds in terms of 12-month performance percentage change
| Fund name | Fund size £m – Q3, 2022 | Annual change in fund size £m | 1 year change performance % |
| Nuveen Real Estate UK Retail Warehouse Fund | 344.8 | 24.60% | 32.3 |
| Grosvenor Liverpool Fund | 271 | 85.10% | 20 |
| Industrial Property Investment Fund | 3363.3 | 19.80% | 19.4 |
| Tritax Property Income Fund | 231.6 | 13.10% | 17.5 |
| Patrizia Hanover Property Unit Trust | 603.3 | 18.40% | 17.1 |
| Nuveen Real Estate UK Property Fund | 182.4 | 7.80% | 16.8 |
| Charities Property Fund | 1419.6 | 17.20% | 16.1 |
| Kames Capital UK Active Value Property Unit Trust | 186.3 | -8.50% | 16.1 |
| Royal London UK Real Estate Fund | 3758.8 | 19.00% | 15.9 |
| Triton Property Fund LP | 1222.3 | 17.10% | 15.4 |
Source: AREF/Alliance Fund
Real estate funds come in all shapes and sizes, allowing for collective investment from numerous investors, which are pooled together to purchase real estate assets, most commonly residential and commercial real estate.
Reaction
The Association of Investment Companies, whose members are UK-listed investment companies, does not have all of the funds on the AREF as its member companies, as it does not include funds or unit trusts.
However, speaking more generally to the performance figures of property investment over the past year, Annabel Brodie-Smith, communications director of the AIC, said: “The news that open-ended property funds have been suspended yet again has confirmed that the best investment vehicle for a hard-to-sell asset like property is an investment company.”
Property investment companies are usually referred to as Reits. Open-ended property funds hold considerable amounts of cash but still cannot sell property quickly enough to meet redemption requests when confidence falls.
They are then forced to suspend, meaning investors cannot buy or sell them.
Many analysts think the sell-off has created buying opportunities in the property investment company sector.
Brodie-Smith said: “Investment companies (Reits) provide a permanent pool of capital which allows their fund managers to take a long-term view of their portfolio and they are not forced sellers of property when demand falls.
“Investors can buy and sell their investment company shares freely on the stock market.
“Of course, the share price can fall dramatically when property suffers such as during the pandemic but in the past share prices have bounced back quickly when sentiment improves.”
In recent months, investment commentators have warned that a prospect of a recession may be tough for the property sector.
However, Brodie-Smith commented: “Many analysts think the sell-off has created buying opportunities in the property investment company sector as discounts have widened.
“Some property investment companies have dividends which are linked to inflation which is reassuring for investors in this high-inflation environment.
“In addition, the forced selling of properties by open-ended funds could create opportunities for investment companies to buy these properties at low valuations.”
simoney.kyriakou@ft.com