November was the second-worst month this year for property fund outflows, according to the latest figures from global funds network Calastone.
Property fund outflows rose sharply as investors withdrew a net £88m from property funds, making November the second-worst month of the year after August’s £121m outflow.
The increase from October’s £52m outflow was driven almost entirely by a sharp drop in the volume of buy orders. Sell orders were virtually flat month-on-month at £121m, but buy orders fell by almost three-fifths.
Calastone’s head of global markets, Edward Glyn, said: “Property faces a triple squeeze. Weak tenant demand means commercial property rental growth is lagging well behind inflation. High market interest rates mean capital values are falling. And high finance costs are eating into profit margins.
“Capital is in shorter supply too as investors who have spent a decade or more starved of income now have a multitude of high-yielding alternatives acting as a magnet for their cash. Ultra-low-risk money market funds have absorbed more cash in the first 11 months of 2023 than they have in the previous eight years put together because their yield is now so attractive.”
And this is unlikely to be the end of the outflows. “Until we see a decisive turn in the UK’s growth prospects, commercial property is likely to continue to struggle,” Glyn added.
Q4 has so far notched up £137m of net outflows, with September’s exceptional net inflow of just £3m barely making an impact.
That means 2023 outflows currently stand at £581m, already above last year’s outflows of £535m. But this is an improvement on the outflows recorded for the previous three years of £2.3bn in 2019, £1.18bn in 2020 and £2.1bn in 2021. The last year to see a net inflow, albeit of just £2m, was 2018.
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