Finance

Investors yank £5.6bn from UK property funds on Covid variant fears

Investors have withdrawn £5.6bn from UK property funds over the past two-and-a-half years, with fears Covid variants could deliver a further blow to the already beleaguered real-estate sector.

Figures from Calastone, which tracks money entering and leaving funds in the UK from financial advisers, fund supermarkets and wealth managers, show investors withdrew £445m from property funds in May — the second highest monthly outflow figure on record.

The redemptions posted last month mean investors have now taken out a total of £5.6bn from UK property funds over the past 32 consecutive months, according to Calastone.

READ Office headcount seen falling to 80% of pre-Covid levels as flex work becomes norm

Last month’s withdrawals were not enough to top record outflows from UK property funds in March, when investors redeemed £589m.

Most headed for the exit as soon as real estate funds began lifting dealing restrictions that they had put in place last year once it became difficult to obtain accurate valuations on assets such as hotels, shops, offices and restaurants as national lockdowns were imposed.

Despite property fund outflows slowing in April, the pace of withdrawals picked up last month after some experts called for a delay in the lifting of Covid restrictions on 21 June after the discovery of an Indian variant, which has a higher transmission rate than other strains.

Edward Glyn, head of global markets at Calastone, said anxiety had been rising among investors about the potential impact on the UK property sector.

“Anything that delays the return to offices and the removal of limits on capacity in hospitality, retail and leisure venues is bad for commercial property in the short term,” he said.

“Recent survey data suggests the long term may also be gloomier as companies plan to cut floorspace in future. This seems to have spurred further selling of property funds from investors who seem to be looking for reasons to be negative on the asset class.”

READ Investors fear more property fund casualties after Aviva closure

Last month Aviva Investors announced it was permanently closing its UK property fund, saying it had become “increasingly challenging” to generate positive returns while also providing liquidity to investors wanting to cash out when it reopened.

Some market commentators have suggested the closure of Aviva’s fund, which managed £367m, could be the first of many.

The fund, which had 23% of its assets in cash and delivered an 11.9% slump in returns over the year to the end of March, was one of only two property vehicles that had not resumed dealing after suspensions were imposed last year due to the onset of the pandemic.

UK property funds are facing a potential overhaul to their liquidity requirements. Last year the Financial Conduct Authority put forward proposals that investors in property funds should have to give between 90 and 180 days’ notice when they want to withdraw their money.

Last month the regulator said it would not make a final decision on property funds until the third quarter at the earliest, so that it could consider feedback from a separate consultation on creating a new “long-term asset fund” vehicle for the wider market.

To contact the author of this story with feedback or news, email David Ricketts

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