Property funds hit by GBP1.1bn of outflows in 2020, despite suspensions, but outflows are slowing

Outflows

Property funds suffered outflows of GBP1.1 billion in 2020, according to the latest Fund Flow Index from global funds network Calastone. 

The outflows came despite all the UK’s commercial property funds suspending dealing for at least two months in April, as the pandemic swept around the world, with many not reopening until the autumn. Partly thanks to suspensions, the outflow for 2020 was less severe than 2019, when investors withdrew capital of GBP2.3 billion. If the months of suspensions are included as months when outflows would have occurred, property funds have now shed capital for a record 27 consecutive months.

Outflows are slowing, however. In December, they fell to GBP224 million, down from GBP315 million in October and GBP263 million in November. 

Calastione's FFI: Real Estate, which places net fund flows into the context of the total turnover of buy and sell orders, rose to 22.0 (a value of 50 means buys equal sells). This means that for every GBP1 an investor subscribed to funds, others withdrew just over GBP4.50. This is clearly a very weak reading, but it marks an extremely  significant improvement on September and October, when sell orders were GBP8.50 for every GBP1 bought.

Edward Glyn, head of global markets at Calastone, says: “The pandemic has had a very uneven impact on commercial property. Some sectors, like logistics, warehousing and industrial are proving more resilient, while retail and hospitality are suffering big falls in value. The effect also varies from one part of the world to another depending on the severity and duration of lockdowns. Rents have naturally come under pressure from the lack of demand, which in turn compresses capital values. Even so, the collapse of long-term interest rates has cushioned asset prices, leaving losses less severe than the economic disruption might otherwise suggest. 

"Property functions over a long cycle which explains why capital tends to flow in or out for many months at a time. It may be too soon to call a turnaround, but fund managers will be encouraged to see the pace of outflows in December declining for the second month in a row.”