Richard Williams, property analyst, QuotedData in Portfolio Adviser Magazine, October 2023:
If, as the data suggests, inflation is coming under control and interest rates have hit a peak, Reits could be in for a re-rating. Languishing on discounts to NAV of 30-40%, the end of the interest rate escalator cannot come soon enough for the sector. Whether interest rates come
down or stay at an elevated level for some time remains to be seen, but investors can only look at the real estate sector with confidence once they have some certainty.
Despite a hiatus in the investment market, many real estate sectors continue to display strong operational metrics, with good demand and solid rental growth. None more so that the student accommodation sector.
University applications continue to rise – both from domestic students and more rapidly from overseas students. At the same time there is a huge shortfall in accommodation to house these students, which is even more pronounced in the top university cities, with predictions that the UK could have a shortfall of 450,000 student beds by 2025.
Empiric Student Property has been trading on a discount of more than 20% for many years now, and with a new strategy starting to pay off a re-rating should follow.
Values in the logistics sector have been hardest hit, coming off the keenest yields, but the supply-demand dynamic is still compelling. With valuations now stabilising, continued strong occupier characteristics and rental growth prospects make the logistics-focused companies look very good value.
The two European focused companies – Tritax EuroBox and abrdn European Logistics Income – have quality portfolios of continental European warehouses and have been apt at capturing large rental growth.
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