The suspensions of redemptions in the Kames Property Income Fund and Janus Henderson UK Property PAIF fund on 16 March, followed by the Aviva Property Trust a week later, are likely to be followed by similar actions by other UK open-end commercial real estate (CRE) funds, Fitch Ratings says.

UK CRE funds have a history of applying extraordinary liquidity management measures, such as suspending redemptions (or "gating"), as a result of their acute asset-liability liquidity mismatch. The gating of the three funds, along with the suspension of several Danish bond funds last week, indicates increasing stress in European open-end mutual funds. 

Suspension of redemptions due to high outflows may be triggered before fund boards can implement a pricing-uncertainty-driven suspension. The level of cash and available liquid assets in UK CRE funds has been falling marginally. Fitch estimates that funds had average liquidity of about 15.7% at end-2019, falling to 15.5% at end-January. However, liquidity varies significantly among funds, ranging from 27.4% to a low of 4.8% (end-January data).

Among those funds that remain open, the lowest level of liquidity was 8.3%, implying that redemption requests in excess of this amount would trigger a suspension of redemptions.