Funds put trust in commercial property

Published on Saturday 2 August 2008 15:37

THERE are signs that the commercial property sector is emerging from the doldrums, with Hunter Property Fund Management (HPFM) launching an investment trust and Scottish Widows lifting the redemption period on its funds.

HPFM has secured 30m from Royal Bank of Scotland to establish the Performance Property Trust to invest in properties with capital appreciation potential.

It will focus on properties which it thinks will gain value from refurbishment, planning gains and extensions. The fund has a target size of 100m, with initial lot sizes between 5m and 10m.

The trust is the fifth fund to be launched by HPFM since Mark Hunter established the Edinburgh-based business in 1999 to provide investment opportunities for institutional funds and high net worth individuals.

The firm has 400m assets under management which includes three office buildings in Manchester, St Ives and Sheffield, the first properties in the new fund. Between them, they are worth 9m.

Other HPFM funds include the Retail Plus Property Trust, which invests primarily in town centre retail property across the UK, the Private Property Fund, a mixed portfolio which has generated a 20% return on investment, the Active Retail Fund, which invests in small shopping centres in the UK, and the St Wenceslas Property Fund, which acquires properties in central Europe.

Hunter, managing director of HPFM, said: "We have attracted investment from a number of private equity sponsors who recognise this is a good time to capitalise on the current property market corrections and acquire assets at historically good rates."

Ben Dale, director of property finance with RBS in Edinburgh, said that HPFM has used its extensive property network to source attractive investment opportunities that produce good rates.

Scottish Widows said improved liquidity from the sale of assets in its life and pension property funds will allow it to lift the 180-day delay period for policyholders requesting redemptions, transfers and switches.

The restriction, put in place on January 21 because of the slowdown in the commercial property market, will be removed on August 18.

Other encouraging news has emerged that commercial property prices in east London have risen by more than 35% since the 2012 Olympics were announced.

The latest research shows prices around the Olympics site in Stratford have outstripped the national average by as much as 28% and have raised hopes that the 2014 Commonwealth Games will help put Scotland's stagnant market back on track.

According to King Sturge, the commercial property rental market has seen dramatic increases across all sectors in east London since the capital successfully won the Olympics bid in July 2005.

Retail rents have leapt by 36%, also aided by the development of a major shopping centre in Stratford, compared with an average rise in the rest of the UK of 8%. The forthcoming games have had a similarly dramatic effect on industrial rents, which have jumped 21% in the last three years.

While growth in the office rental market in east London has been less impressive, rising by 6%, King Sturge says several speculative developments and a decision over how the planned 1.4 million square foot media centre will be used, could boost growth further in the run up to the games in four years' time.

The market went into reverse last summer after 10 boom years, and activity has failed to pick up as banks shy away from funding large and highly leveraged deals.

Recent figures from Jones Lang LaSalle showed commercial property last year became the worst performing asset class for the first time in 20 years as returns plunged from the double digits into negative territory. Property consultants Drivas Jonas is forecasting zero growth this year.

But there are hopes that the 'Olympics effect' south of the border will increase enthusiasm about the future of the Scottish market as Glasgow prepares for the 2014 Commonwealth Games.

Norman Pollock, the partner in charge of King Sturge's Glasgow office, said he has noted an increase in enthusiasm for regeneration projects across the whole of Glasgow, not only in the East End, where the games will be held. He expects the leisure sector in particular to perform well in the run-up to 2014, with some experts placing the shortage of available hotel rooms in the city at 2,000.

But he added: "The key to how much the market improves is going to be how much is spent on infrastructure."