News & analysis
Lenders wary as they predict commercial property values will slide in 2019 - survey
Three quarters of lenders expect UK commercial property values to fall in 2019, typically predicting a drop of more than 2.5% according to Link Asset Services. Only 8% expect commercial real estate values to rise. The report, which analyses the UK’s largest dataset of lenders’ sentiment regarding real estate, also reveals that 61% of lenders expect residential prop- erty values will fall, reinforcing the forecast of negative house price growth by the OBR in the recent Spring Statement.
New report delivers wake-up call for active management industry
The active management industry must work harder in several areas to convince investors of its value proposi- tion, a new report by Allianz Global Investors says. Incorporating the views of almost 500 institutional investors from around the world with $15trn (£11.5trn) in assets under management, Staying Active: how to regain trust in active management outlines that while active managers are best placed to help investors overcome the challenges they themselves identify, overall confidence in active managers is low.
Political uncertainty is weighing heavily, with 74% citing political risks as the biggest threat to the commercial real estate market in the coming year. Among those citing political risks, Brexit was by far the largest concern (51%). Lenders’ pessimism is reflected in a reduced number expecting their new lending to grow. The number expecting loan volumes to increase fell by 18% compared to 2018, and the number expecting to increase the size of their orig- ination teams fell by 10%.
Loan to values have also fallen by a modest 2% since 2018, reflecting concerns over elevated risk. Meanwhile, pricing on higher risk categories of lending has continued to rise. The report also demonstrates that lenders are focusing on their core market sectors and regions - a further sign of caution. James Wright, Link’s head of real estate finance, said: “Confidence has turned to caution at the start of 2019. Brexit has already weighed heavily on UK real estate market, and political risk is by far lenders’ largest concern.”
Of the global investors surveyed, less than a quarter (23%) said they thought active portfolios were worth the cost, with just 17% of respondents in the US agreeing. By contrast, 61% of investors said they thought active man- agement was the best investment option when the underlying components of markets show little correla- tion and 71% said they thought active managers were best placed to capitalise on the investment opportunities presented by digital transformation.
While important, the report found that performance is not the only factor influencing investors’ choice of managers, with 48% saying it was one of their top three priorities in manager selection. The investors surveyed also expressed a clear preference for wide-ranging, long-term relationships with firms that understand their business goals and challenges (41%). They are also looking for managers to have the capabilities to evolve with their needs, which can result in benefits for clients and managers (40%). Andreas Utermann, CEO of Allianz Global Investors, said: “This is a wake-up call for the parts of the active asset management industry yet to grasp just how funda- mentally our industry is changing.”
Defined contribution payments surpass defined benefit saving levels
The amount of money paid into defined contribution (DC) pension schemes by employees has overtaken the amount paid into defined benefit (DB) schemes for the first time.
The Office for National Statistics (ONS) reports that employees contributed £4.1bn into DC pension pots in 2018 while £3.2bn was paid into DB pension schemes by workers.
This is due to automatic enrolment and education, said Stuart Price, partner and
8 | portfolio institutional | April 2019 | issue 83
actuary at Quantum Advisory. “Auto enrol- ment has seen a huge increase in the num- ber of employer DC pension schemes and there’s no denying people are more clued up about their pensions than ever before with 84% of eligible employees enrolled into a workplace pension,” he added. “The majority of employees know that in order to enjoy a comfortable retirement, they can- not rely on a state pension and must start saving into a private pension as early as they can. Auto-enrolment has gone a long
way to encourage this effort and, despite last year’s minimum contribution increase, has seen a
steady participation in the
scheme. In 2017 there were 7.7 million active members of private sector DC schemes in the UK; a very reassuring figure. In April, the minimum contribution increased to 3% with the employee contrib- uting 5%. Another reason for the disparity between DC and DB inputs is the steady decline of the generous DB schemes.
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