Premier's Ross prepares for stall in commercial property growth

Premier fund manager Alex Ross is positioning his fund for a halt in capital growth in the commercial property sector but Thames River's James Wilkinson is keeping up his exposure.

Alex Ross, manager of the Premier Pan European Property Share fund, has warned capital growth in the commercial property sector will stall and the Budget has worsened prospects for the sector.

Figures from property index providers IPD show capital growth in the sector was 13.5% in the 12 months to the end of May. However, Ross said the rise in capital values would not continue.

Ross favours smaller firms

Ross is moving away from larger companies like Land Securities, British Land and Hammerson. He said small cap turnaround firms, which convert distressed properties, would be more attractive in an environment of stalled capital growth.

Ross’s fund is 46% invested in the UK, the majority of which is in turnaround firms. He has cut the fund’s weighting in Land Securities from 9% to 6.3%.

‘We have 25% of our total exposure in UK turnaround stocks and property asset managers now, as we won’t see much more capital growth,’ said Ross. ‘I am looking to increase the position in turnarounds further as these firms will be the clear winners over the next three years as capital values stop growing.’

Last week’s Budget has exacerbated this trend, according to Ross, with both the government and consumers expected to tighten their purse strings.

Further economic weakness caused by higher capital gains tax and VAT would lead to more distress in commercial property, as tenants came under pressure, he said.

‘This distress plays more into the hands of these asset managers, as more restructuring opportunities arise where landlords with limited experience and capital are unable to survive with a lower income caused by voids and lower rents,’ he said.