BMO UK Property Fund half year update: maintaining a cautious outlook

Activity in the UK property market has been subdued over the first half of the year – where to from here?

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Risk Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested. Past performance should not be seen as an indication of future performance.

Opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The value of directly held property reflects the opinion of valuers and is reviewed periodically. These assets can also be illiquid and significant or persistent redemptions may require the manager to sell properties at a lower market value adversely affecting the value of your investment.

While activity in the UK property market has been subdued over the first six months of 2019, as ongoing political uncertainty acts as a handbrake on investment volumes, property continues to deliver an attractive income return. Guy Glover and Emma Gullifer explained in a recent webinar why they believe the outlook remains promising, both for the BMO UK Property Fund and the wider market.

Takeaways from the session are outlined below.

Capital growth

Capital growth has been held back by political uncertainty around Brexit, ongoing structural issues in the retail market and wobbles in business confidence in light of geopolitical tensions. However, market fundamentals remain firm, with a constrained development pipeline supporting the potential for future rental growth.

Risk Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested. Past performance should not be seen as an indication of future performance.

Opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

Performance

Over the year to date, returns have been muted across the market, although this is mainly due to capital falls in retail impacting positive performance from all other sectors. However, there is good reason to remain optimistic. Aside from retail, the rest of the market looks nicely positioned for positive performance over the next five years, dominated by the income return. Furthermore, with bond yields looking ‘lower for longer’, property will continue to offer an attractive income premium. Importantly, the BMO UK Property Fund has the reversionary potential to capture approximately 20% income growth.

 

A focus on retail

The rise of online shopping has prompted significant structural change within the retail sector. However, while some brands have struggled and are trimming their store portfolios, there are still some occupiers expanding. Guy and Emma believe the best line of defence is to hold assets in good-quality locations where occupier demand is likely to be resilient. The BMO UK Property Fund has one of the lowest exposures to the sector across its peer group, with a 6% exposure to the high street and 17% to retail warehousing. It has no exposure to shopping centres or department stores.

 

Brexit uncertainty

As the political uncertainty over Britain’s exit from the EU continues, the UK property market has seen a slowdown in decision-making, both from investors and occupiers. Investment volumes have been affected; however, a post-Brexit bounce is expected once the uncertainty is removed.

 

Liquidity update

The fund maintains a consistent and sensible approach to liquidity management, underpinned by having the right long-term investors in the fund: advised clients from knowledgeable advisers. This, combined with a core long-term approach and liquid-sized lots, makes a market-leading approach.

 

A different approach: the right investors, the right portfolio, real returns

The BMO UK Property Fund invests in good-quality assets with sustained occupier demand, offering the potential for income growth. Its unique positioning with an in-house asset management team ensures that strong relationships with occupiers are maintained, and that opportunities to release growth potential are maximised.

Want to know more? Watch the full webinar.

The value of directly-held property reflects the opinion of valuers and is reviewed periodically. These assets can also be illiquid and significant or persistent redemptions may require the manager to sell properties at a lower market value adversely affecting the value of your investment.

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