Property funds suffered further outflows in May, according to the latest figures from Calastone.
The global funds network’s latest fund flow index, published this morning, shows investors selling down a further net £46m of their holdings, the worst month for the sector since January.
Edward Glyn, head of global markets at Calastone, said: “Property is caught between the rock of a flatlining economy, which is negative for tenant demand, and the hard place of higher interest rates both depressing asset values and competing for investor capital. After the worst month for UK gilts since the failed mini-Budget, the yield on UK government bonds for a risk-free return is now close to commercial property.
“Investors now have to be sure of capital gains on property before they will take the plunge and accept the additional risk associated with the asset class. Outflows for open-ended funds are the equivalent of steep discounts for listed property investment trusts.”
He added that the net outflow was not driven by an increase in sales – with sell orders rising by just 2.5% – but by a “buyers strike”. The volume of buy orders shrank by almost one-third during the month.
It is the tenth consecutive month of outflows from property funds. In addition, since October 2018, outflows have taken place in all but two months.
Glyn said this would not necessarily continue to be the case. “This is a cyclical industry,” he said, pointing out that while commercial property values had fallen, more stability did appear to be returning. “It is unclear whether this will hold as rates move up further. Rental values are on the up too, an indication of property’s ability to act as an inflation hedge, at least over the longer-term.”
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