Investors pulling out of property funds thanks to ‘triple squeeze’ on sector
UK investors pulled money from real estate funds for the second month running in November, but sentiment towards equity and fixed-income funds improved, fund network Calastone said on Wednesday.
Investors withdrew 88 million pounds ($110.70 million) from real estate funds overall last month, making it the second-worst month of the year for property funds after August’s 121 million-pound net outflow, according to Calastone’s data.
The property outflows were driven by a decrease in buy orders, while sell orders remained almost unchanged, Calastone said.
Property faces a “triple squeeze” of weak tenant demand in commercial property, high interest rates hitting capital values, and high finance costs hurting profit margins, said Edward Glyn, head of global markets at Calastone.
Real estate firms around the world have come under strain as higher interest rates have driven up the cost of funding.
The Bank of England raised interest rates 14 times in a row between December 2021 and August this year. It paused its increases in September.
Jefferies analysts said in September that London’s office market was in a “rental recession” as empty workspace hit a 30-year high.
“Until we see a decisive turn in the UK’s growth prospects, commercial property is likely to continue to struggle,” Glyn said.
UK investors showed more confidence in equity funds, which posted net inflows of 449 million pounds in November, Calastone said. This was a tentative turnaround in the wake of 4.5 billion pounds of overall outflows between May and October, Calastone said.
There were still outflows in ESG equity funds, which lost a net 524 million pounds in November. But fixed-income posted “modest” net inflows for the first time in four months, gaining 256 million pounds overall, Calastone said, attributing the change to a decline in bond yields.
Reuters