Investor confidence in UK real estate edges up after Freedom Day as outflows decrease
In the wake of the UK’s “Freedom Day” easing of Covid restrictions, investor optimism for real estate funds gained ground in July, reflected in significantly decreased outflows compared with previous months.
Investors pulled £94m from UK property funds in July – which, although still a considerable outflow, was a marked improvement on the £249m outflows in June and £414m outflows in May.
Since fund suspensions were lifted in the autumn, UK property outflows have averaged at £267m per month, according to fund network Calastone, who compiled the figures.
Real estate funds even saw their first net inflows of the year on a couple of days in late July, as purchases edged above selling activity.
Although reduced selling was the main change in investor activity that reduced overall outflows, as sell orders fell by a third for the second month in a row, Calastone also noted an uptick in buyer interest – an early indication that as work from home guidance is dropped, investor confidence in the sector is on the up.
Gross real estate fund purchases rose to £142m, their highest level since before the pandemic struck the UK, in February 2020.
It comes after the sector has suffered outflows almost every month for around three years – way before the pandemic hit the UK – in part due to “significant oversupply” in some areas of commercial property.
July’s figures are encouraging and indicative of a renewed sense of investor confidence, but they are nevertheless a negative result, according to Calastone’s Fund Flow Index, which estimates selling outweighed buying at a rate of £1.65 sales for every £1 of buys.
There are, however, “real bright spots” in the latest data, said Edward Glyn, head of global markets at Calastone.
“Industrial premises are in high demand as manufacturers get back to work and logistics operations thrive.
“These chinks of light, combined with very positive news on the economic recovery, are helping to quell investors’ most pessimistic instincts on real estate.
It may take time before we see sustained inflows again, but when the cycle turns, the evidence in our historic data shows that inflows will then continue for a long period.”
It comes a day after property giant Derwent London announced its acquisition of five buildings around Bloomsbury and Marylebone, as demand for new office space starts to rebound.
Derwent exchanged contracts for two properties totalling 182,100 sq ft located in the so-called knowledge quarter around University College London for £214.6m.
The freehold office building at 250 Euston Road is let to University College London Hospital on a lease that expires in 2039 with rent currently at £4.7m per year.