Higher higher interest rates have weighed on investors as outflows continued throughout March.

According to the latest Fund Flow Index by funds services firm Calastone, investors in UK-domiciled real estate funds redeemed £15 mln (€17 mln) of their holdings.

Though data shows funds have been pulled out for almost three quarters of a year, the company also suggests a slowdown in that rate. The £15 mln figure is well below the average for the last eight months, which stands a £58 mln.

Calastone said its daily trading figures showed there was 'no noticeable impact on property funds from the jitters over the banking sector', first in the US and then in continental Europe.

'Ongoing negativity to the commercial property sector came despite a marked uptick in interest in equities, which saw their largest inflow of funds since December 2021 during the month (March).'

Edward Glyn, head of global markets, said: 'Property fund flows are less responsive these days to changing market conditions because so many funds have implemented restrictions on the speed and frequency with which investors, especially large ones, can withdraw their capital. This is a sensible move that prevents fire sales of prized assets, but it makes it harder to gauge investor sentiment in the short term.'

The data for UK-domiciled funds comes in the same week as a research paper from the European Central Bank suggested open ended real estate investment funds in Europe could pose a systemic risk.

Calastone said the longer-term picture was 'clear to see'. 'The current run of outflows has a long pedigree, continuing almost uninterrupted since late 2018, as a series of rate hikes by the Federal Reserve ended the long bull run in financial markets and caused a big slowdown in the world economy.'

'The most recent succession of rate rises over the last year, and fears over the resulting economic slowdown, continue to keep pressure on the sector. But it’s therefore quite likely that, when the rate cycle turns again and economic gloom lifts, we will see flows returning to the sector. In the meantime, outflows are likely to continue.'