Aviva suspends dealing in commercial property fund

This morning the Bank of England also said it was monitoring the behaviour of investors in open-ended commercial property funds, as one of the risks to financial stability in the UK.

The central bank’s Financial Stability Report also noted that foreign investment in the UK commercial real estate market fell by 50% in the first quarter of this year.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

"The dominos are starting to fall in the UK commercial property market, as yet another fund locks its doors on the back of outflows precipitated by the Brexit vote. It’s probably only a matter of time before we see other funds follow suit.

"The problem these funds face is that it takes time to sell commercial property to meet withdrawals, and the cash buffers built up by the managers have been eroded by investors heading for the door, both in the run up to the EU referendum, and in the aftermath.

"These managers will now be adding to the supply of commercial properties on the market, which is likely to put downward pressure on prices. Foreign investors might be tempted in by the fall in Sterling, but equally they may decide to steer well clear of an economy in limbo.

"Investors in property funds need to focus on the reasons they bought commercial property in the first place, and consider whether they are still intact, because there may be challenging times ahead. Diversification and income are both legitimate reasons for investing in the commercial property funds, but high costs and poor liquidity are two drawbacks which investors need to be willing to shoulder before investing in the sector."