By Jean-Baptiste Andrieux, Reporter, Trustnet,16 July 2024:
Real estate investment trusts (REITs) have suffered through a daunting couple of years as inflation and interest rates have risen, but those headwinds are dissipating. With many trusts trading at wide discounts, experts believe this is a good time to revisit the sector.
Typically, higher inflation and rising interest rates make real estate a less attractive proposition because borrowing costs and mortgage rates increase, purchasing power falls and other asset classes such as bonds and cash become more appealing. However, with UK inflation falling to 2.0%, rate cuts seem to be on the horizon, potentially supporting a rebound in real estate.
Richard Williams, property analyst at QuotedData, said: “Even if that first cut is only a quarter point, it will send a message to lenders and borrowers that the trajectory is down and the forward yield curve should follow suit.
“Confidence that the bottom of the real estate market has been hit would facilitate more investment activity and a return to positive valuation growth.”
Another compelling point for REITs is the discounts at which they are currently trading, following their recent rout. Private equity firms have seized this opportunity to make acquisitions. For example, Blackstone bought Industrials REIT last year, while Brookfield is in the early stages of making an offer for Tritax EuroBox.
Picton Property Income
Picton Property Income is trading at a 30% discount and its management team has a track record of adding value, according to Williams.
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