by Alex Catalano
After disinvesting in property for the first half of 1987, pension funds changed their tune in the third quarter, putting £109m net into bricks and mortar.
Their purchases that quarter climbed to a record £445m. However, sales continued high, with £336m of disposals. Agents Debenham Tewson & Chinnocks point out that in the 1980s funds have shown a greater willingness to sell their property assets.
DTC estimate the turnover rate for 1987 to be around 9%, compared with less than 2 1/2% in 1984. Pension fund property sales could top £1.25bn in 1987, DTC say.
Insurance companies, too, have accelerated their rate of portfolio sales. In the third quarter of 1987, their disposals leapt to £565m, leading to a net disinvestment in property of £49m. During the first half of the year, insurance companies had been net investors in property.
Taken together, pension funds and insurance companies sold £901m worth of property in the third quarter of 1987. As DTC point out: “The institutional sector has been able to turn increasingly both to the large property company and the smaller merchant developer to purchase unwanted holdings. The leap in the sales trend during 1987 by the institutions has been mirrored by a growing exploitation of the stock market for funding by corporate property developers.”
Institutional purchases in the third quarter totalled £961m, producing a net investment figure of £60m. By comparison, institutions invested £4.3 bn net in UK company shares and £515m in overseas equities over the same period.
Agents Fletcher King, looking forward to the last quarter of 1987, note that the stock market crash in mid-October did cause some funds to back away from the property.
“However, this was contrasted by the keen activity of others in the market who, having deals agreed, aimed to have them tied up before the end of the year,” Fletcher King note.
“One thing has been clearly highlighted and that is the stability of the direct property investment market when other markets are experiencing unnerving volatility. The relative illiquidity of property, oft criticised in the past, has been proved a virtue in the fourth quarter.”
Richard Ellis’ latest monthly index shows property producing a total return of 21% for the 1987 calendar year.
This compares with returns of 8%, 14% and 5% respectively on UK equities, gilts and index-linked gilts.
Rents in 1987 grew at an average rate of almost 17%, a level unseen since 1979, while capital values rose by 14%. Industrial properties shone with a total return of 27.6%, while offices followed at 21.1% and shops turned in 17.3%.
