For the first time in almost five years, more money is being withdrawn from pooled commercial property funds in the UK than being invested, according to the industry’s trade body.
In a further sign of changing investor sentiment to commercial property, redemptions jumped more than 50 per cent in the third quarter to £939m in the unlisted fund sector, according to the Association of Real Estate Funds (AREF).
This represents a rise of more than five times the level of outflows with the same period last year.
However, money is still being invested, albeit at a lower rate than before. About £800m of cash was invested in property funds during the quarter, about half the sum invested in the same period last year, which led to the first negative flows since March 2003.
The commercial property market has gone through several years of stellar growth, and investors piled in hoping to benefit from the high rates of return.
But the market is seen as having peaked during the summer, with the value of commercial property now in decline in most areas of the UK market.
Fund managers admit privately that properties within some funds might need to be sold to cover the cost of exiting investors, although there is no sign of any curbs to prevent people leaving because of liquidity shortages within the funds.
Many large open-ended unit trusts cut prices from “offer” to “bid” to stem the outflow of cash during the summer, a move which, it is hoped, will discourage selling and attract new investors by lowering the price of the units.
AREF, which tracks 63 unlisted property funds, representing more than £43bn, also reported that the quarterly total return at end September was negative for the first time since the second quarter of 1995, at -1.7 per cent.
“This is symptomatic of a general slowdown in all areas of the commercial property market - in direct property, indirect vehicles and listed real estate securities,” the report said.
It added that pooled property funds had still outperformed real estate equities and gilts “in spite of a general slowdown in the broader commercial property market”.
Pooled fund total returns were 6.9 per cent year-on-year, compared with a fall in returns of 11.6 per cent from real estate equities.
AREF reported a “wide variance” in the performance of specialist property funds with those focusing on Central London offices performing best for the quarter.