‘Modest’ inflows for property funds in September

Property funds have returned to a net inflow for the first time in more than a year. According to the latest Fund Flow Index from global funds network Calastone, investors added a modest net £2.87m to their property fund holdings during September. It is the first time flows have been positive since July 2022. August, by comparison, delivered a £121m outflow. However, this has not been enough to arrest the net outflow for Q3, which stands at £184m. Calastone said the small inflow was driven both by a reduction in the value of sell orders and by a similar, notable increase in buying activity. The report said: “When both these measures move in opposite directions it is a more powerful indicator of sentiment than when net flows are influenced more by a change in one or other of them.” Inflows began following unexpectedly positive inflation data in early September, and accelerated after the Bank of England decided to hold the base interest rate, rather than opt for a 15th consecutive increase. Edward Glyn, head of global markets at Calastone, said: “Commercial property values were very hard hit in the second half of 2022, both in the UK and internationally as the market adjusted to the sharply higher interest rate environment. In 2023, values have seen much more modest declines, which has brought a greater sense of stability to the market.” He added: “The clear change in sentiment that accompanied both more positive inflation data and the rate pause from the Bank of England will be greeted with relief in the hard-pressed property sector.” However, he warned this single swallow did not mean a return to summer. “It is far too soon to suggest September marks the beginning of a sustained turnaround in investor sentiment however – outflows had been accelerating until August, reflecting concerns around economic growth and the impact of high interest rates on debt financing costs in the sector.” There is still a long way to go for funds to end the year on the up. The net for 2022 was a £535m outflow, on top of a £2.14bn outflow in 2021, which in turn followed outflows of £1.18bn for 2020 and £2.33bn for 2019. Even 2018’s net inflow was just £2m. So far, 2023 has delivered a net outflow of £425m, meaning Q4 would have to see inflows not experienced since Q1 of 2015 to break even. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews