Investment by UK property unit trusts took a sharp downturn in 2016 as institutions piled their money into government bonds.
Figures released yesterday from the Office for National Statistics showed a net investment of -£3.8bn by property unit trusts, which include open-ended funds. It was the first time in the period since 2011 that the sector posted net outflows.
Since 2011, the average annual investment has been £35bn. Although fourth quarter investment by the sector was a positive £3.1bn, it did not balance out the disinvestments in Q1 and Q3.
Meanwhile, pension funds, insurance companies and trusts piled into gilts, which are seen as a secure, liquid assets. Because the government has never failed to pay interest for gilts, they become an attractive investment in times of economic or geopolitical risk. At £18bn, net investment into gilts last year was the highest it has been in the period since 2011.
Q4 net investment was £2bn, four times the five-year quarterly average.
As EG reported earlier this week, the gap between 10-year gilt yields and property yields is still near an all-time high, meaning investors are able to get a better return on real estate in relative terms. However, institutions such as pension funds or insurance companies look for stable, long-term income. On a risk-adjusted basis, the ONS data shows that they saw value in targeting lower returns in 2016, if that meant lowering their exposure to potential risks in the wider economy.
Net investment by asset type
| Total | Short-term assets | UK government sterling securities | UK corporate securities | Overseas securities | Other assets | |
| 2011 | 24.3 | 10.9 | -0.8 | -25.5 | 13.3 | 26.3 |
| 2012 | 55.6 | 15 | -10.2 | -10 | 46.5 | 14.3 |
| 2013 | 48.4 | 24.9 | 12.6 | -20.4 | 18.1 | 13.3 |
| 2014 | 12.5 | 5.9 | 10.2 | -22.6 | -0.7 | 19.8 |
| 2015 | 27.6 | 4.5 | 0.8 | -20.6 | 18.8 | 24.1 |
| 2016 | -39.7 | 8.4 | 18.1 | -21.8 | -45.1 | 0.7 |
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