UK property investing is going through a period of irrevocable change.

Traditionally dominated by institutions, 20 or so years ago, we saw the emergence of property investment funds designed to give retail investors access to high quality commercial real estate.

However, the path has been far from smooth, and this industry is facing its own seismic shift.

I can say this with some certainty as I have been manager of the Abrdn Real Estate fund, one of the longest running of its kind, for 19 of its 20 years. 

Over this period, the fund, like others, has endured many highs and lows: from double digit total returns in some years to the challenges brought by unexpected external factors from the global financial crisis to the global pandemic.

At times, it has not been pretty. The fund suspensions – where funds suspended dealing requests – that took place across the industry when investors rushed to the door after the Brexit referendum in 2016 and then the valuation-driven suspension in 2020 with Covid-19 were painful on all sides.

We have been on this rollercoaster ride with investors and appreciate how unsettling it has been. While many open-ended property funds have closed, we have remained on board, evolving and adapting to the new landscape.

And visibility hasn’t always been clear. The days of being able to trade daily in open-ended direct UK property funds could well be numbered, as the Financial Conduct Authority (FCA), continues to deliberate on introducing notice periods on those with over 50 per cent of their assets in illiquid assets, including direct real estate (i.e. investing directly in physical properties as opposed to in shares of real estate companies). 

While this is understandable, it would mean investors having to wait a set period before being able to sell their holdings. 

That’s fine in many cases, but it very much depends on the types of investors you have in the fund. We strongly believe in choice.

This is why, after two decades, and considerable investor engagement, we are transitioning our Abrdn Real Estate fund to a hybrid structure that allows us to hold not just physical real estate but also shares in real estate companies (with a target c. 45 per cent allocation for both UK direct and global indirect assets). 

The latter can be more easily bought and sold, enhancing overall fund liquidity, and allows us greater access to our favoured thematic trends and sectors. 

At the same time, it will still allow us to have some exposure to direct investment in physical properties, which can be enhanced through proactive management of those properties. Importantly, it means that daily dealing remains a key feature.

We are not alone in this. Other real estate funds are looking to 'go hybrid', particularly as the listed real estate sector (i.e. the market of listed companies involved in real estate) has matured and expanded in recent years. 

A listed real estate allocation can also provide exposure to some of the more niche alternative sectors of the real estate market. 

We see many exciting opportunities here and believe it is important that retail investors, as well as institutions, get the chance to participate in the 'best ideas' this market has to offer.

The growth in listed real estate is another example of how the sector has evolved over the past two decades and how investment opportunities are changing and broadening. 

All this comes at a time when we at Aberdeen believe having an exposure to property is as important than ever.

It is crucial that investors have a range of options to access this asset class, depending on their needs, whether that’s open or closed end funds, listed stocks and REITs or indeed Long Term Assets Funds (LTAFs), which are gaining traction too and which have their own way of resolving the liquidity issues of the past.

As a company, our outlook for real estate is the most positive it has been for years. We believe the market has now bottomed out following the rapid rise in interest rates and we are entering a new, more positive phase of the cycle.

Demand is continuing to increase, and future supply of commercial properties remains in check given muted development pipelines over recent years. 

In addition, the diversification benefits that the asset class can offer investors is welcome, particularly in a period of increasing correlations between bonds and equities.

Real estate is also specialising – some of the sectors of the market we are most excited about currently include data centres, healthcare and purpose-built student accommodation. These areas are very difficult for individuals to gain direct exposure to unless it is through a professionally managed fund.

Therefore, we believe it is of vital importance that UK investors continue to have the option to access real estate opportunities via open-ended funds and that those funds adapt to remain relevant in this new era.

Looking back on this 20-year period, the sheer amount and pace of change is astonishing. 

It has been challenging and exciting and I’m sure the next 20 years will be no different. 

Can I predict exactly what the next two decades will bring for property? Of course not. 

Do I think property investing will still be as relevant in 2045 as it was in 2005? Absolutely.

George Shaw is fund manager of the Abrdn Real Estate fund.