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European property funds: Shall I stay or shall I go?

European property funds have taken a battering over the past 18 months and investors have sought to cash out. A temporary freezing of redemptions has given managers breathing space and they’re using the time to convince investors to stick with them. Rachel Wolcott reports.

When fund managers and property analysts tag property returns in the UK and some other European jurisdictions as the worst ever, it’s no wonder investors are seeking to cut their losses. Last year, UK commercial property values dropped by 26%, according to IPD. In the fourth quarter there was a record 14% decline. With the outlook for 2009 looking uncertain at best, some institutional and retail investors still in property have reconsidered and want out.

The rush for the exits started in late 2007 when in the UK alone £1.6 billion (then $3.1 billion) left commercial property funds. Fund providers moved to limit the damage by freezing redemptions for three to six months. The latest round of disheartening results has prompted some to renew this strategy. The FTSE Real Estate index was down 46.6% as of year-end 2008 and the IPD Balanced Property Unit Trust index was down 26%.

UK all-property total returns were the lowest ever recorded for a quarter at minus 12.8%, according to the Jones Lang LaSalle UK Property Index as of the fourth quarter of 2008. This translated into annual total returns of minus 21.2% for 2008.

Already this year large UK pension providers Scottish Widows, Standard Life and Aviva have announced suspensions to redemptions in some of their property offerings.

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