October 2024
Winners and losers in September 2024
Best performing funds in price terms | (%) |
---|---|
Harworth Group | 17.0 |
Life Science REIT | 14.7 |
Hammerson | 12.0 |
Balanced Commercial Property Trust | 10.2 |
Phoenix Spree Deutschland | 8.6 |
PRS REIT | 8.5 |
abrdn Property Income Trust | 8.3 |
Target Healthcare REIT | 7.9 |
Custodian Property Income REIT | 7.6 |
Tritax EuroBox | 7.1 |
Source: Bloomberg, Marten & Co
Worst performing funds in price terms | (%) |
---|---|
Grit Real Estate Income Group | (16.5) |
Ground Rents Income Fund | (9.1) |
Ceiba Investments | (7.1) |
Globalworth Real Estate | (6.9) |
Capital & Regional | (6.1) |
Value and Indexed Property Income | (4.1) |
CLS Holdings | (3.0) |
Alpha Real Trust | (2.5) |
Tritax Big Box REIT | (2.3) |
Unite Group | (1.8) |
Source: Bloomberg, Marten & Co
Best performing funds
It was a busy month for real estate companies, which was reflected in share price moves over September with a median uplift of 2.2%. Corporate activity and merger and acquisition action was again a running theme, but the release of positive interim results was behind the largest share price gain during the month. Harworth Group posted a healthy NAV rise (see page 2) as its strategy to grow to a £1bn company gathers pace. Life Science REIT’s half-year results were less positive, but comments from the chair that it was willing to take any action necessary to address its steep discount to NAV was positively received by the market. Balanced Commercial Property Trust was the subject of a take-private bid (see page 3 for details), while abrdn Property Income’s managed wind-down moved a step closer after it received an offer for its portfolio. SEGRO lodged a share-for-share offer for
Tritax EuroBox (see page 3) and the prospects of a bidding war for the company is not out of the question with private equity giant Brookfield in the wings. PRS REIT‘s shareholders won out in their battle to oust chairman Steve Smith (see page 3 for more details) and its share price bounced for a second month running as a strategic overhaul looks likely.
Worst performing funds
Some familiar names top the list of largest negative share price movers in the month, with pan-African investor and developer Grit Real Estate again taking the wooden spoon. It announced the sale of a Mauritius hotel resort during the month (see page 4) as it continues to manage its balance sheet. Ground Rents Income Fund is also no stranger to this list with the value of its portfolio continuing to be negatively impacted by reforms in the leasehold sector. The company’s share price has fallen 32.6% over 12 months. Cuban real estate specialist Ceiba Investments’ share price continues to re-rate as a combination of factors weigh on its prospects including botched economic reform, worsening relations with the US, and Russia’s war in Ukraine (previously a key source of tourists). Its shares languish on a circa 70% discount to NAV. A bid for Capital & Regional by NewRiver REIT was recommended by both boards (see page 3 for details). The part-share, part-cash offer equated to a premium to its share price, but below the level a wave of optimism had pushed its share price to at the end of August. The market is perhaps continuing to digest Tritax Big Box REIT’s acquisition of UK Commercial Property REIT. Its double-digit discount to NAV now looks very compelling.
Valuation moves
Company | Sector | NAV move (%) | Period | Comments |
---|---|---|---|---|
Schroder European REIT | Europe | (0.8) | Quarter to 30 June 24 | Portfolio valued at €208.3m, reflecting a marginal like-for-like increase of 0.1% |
Harworth Group | Development | 3.5 | Half-year to 30 June 24 | NAV rise driven by sales, development of sites and planning permissions gains |
Triple Point Social Housing REIT |
Residential | (1.2) | Half-year to 30 June 24 | Like-for-like reduction in the portfolio value of 0.5% to £652.7m |
Balanced Commercial Property Trust | Diversified | (4.3) | Half-year to 30 June 24 | Value of portfolio fell 3.3% to £883m |
abrdn European Logistics Income | Europe | (4.8) | Half-year to 30 June 24 | Estimated cost of managed wind-down applied to portfolio value decline of 3.2% to €607.3m |
Life Science REIT | Labs/offices | (5.5) | Half-year to 30 June 24 | Value of portfolio fell 3.8% on a like-for-like basis to £382.6m |
abrdn Property Income Trust | Diversified | (6.2) | Half-year to 30 June 24 | NAV impacted by costs of strategic review and corporate activity. Portfolio valued at £405.5m |
Phoenix Spree Deutschland | Europe | (7.1) | Half-year to 30 June 24 | Like-for-like portfolio valuation decline of 3.3% to €646.4m |
Regional REIT | Offices | (13.5) | Half-year to 30 June 24 | Portfolio value reduced by 5.1% on a like-for-like basis to £647.9m |
Target Healthcare REIT | Healthcare | 5.9 | Full year to 30 June 24 | Portfolio value increased 4.6% to £908.5m |
Supermarket Income REIT | Retail | (6.5) | Full year to 30 June 24 | Like-for-like valuation decline of 3.2% to £1,776m. Flat in second half (+0.1%) |
Corporate activity in August
SEGRO and Tritax EuroBox reached agreement on the terms of a recommended all-share offer by SEGRO for Tritax EuroBox, valuing the company at £1,101m. EuroBox shareholders will receive 0.0765 new SEGRO shares as part of the deal, which valued each Tritax EuroBox share at 68.4p. This equates to a premium of 27% to the prevailing share price, but a discount of around 14% to NAV.
The board of Balanced Commercial Property Trust recommended a cash offer for the company from Starwood Capital valuing the company at £673.5m. The offer, at 96p, represents a premium of 21.5% to its closing price when the board launched a strategic review into the future of the company. Relative to its last reported NAV of 105.1p at 30 June, however, the cash consideration represents an 8.7% discount.
abrdn Property Income Trust agreed a deal to sell its entire share capital to funds managed by GoldenTree Asset Management. The transaction comprises the sale of 39 assets (the company’s entire portfolio, with the exception of land at Far Ralia) and the transfer of debt facilities. The cash consideration of £351m represents a discount of 8.0% to the value of the portfolio of £381.6m at 30 June 2024 (excluding assets sold and Far Ralia) and implies a pro-forma NAV of £244m, equivalent to 64.0p per share (adjusted for costs of the transaction). This represents a 12.7% discount to API’s NAV of 73.3p at 30 June 2024, a 6.7% premium to its prevailing share price, and a premium of 20.1% to its share price when shareholders approved the managed wind-down. It is also a 3.1% premium to the original merger bid made for the company by Custodian Property Income REIT in January 2024. That share-for-share offer implied a value of 62.1p per share, but fell dramatically in the weeks after the news of the offer as the share price of Custodian dropped.
The boards of NewRiver REIT and Capital & Regional reached agreement on the terms of a deal that would see NewRiver acquire Capital & Regional and are recommending shareholders of both companies to vote in favour of it. The deal would see each Capital & Regional share receive 31.25p in cash and 0.41946 new NewRiver shares. This valued the company at £147m (or 62.5p per share) at the date at which interest in the company started in May. An increase in NewRiver’s share price since has seen the value of the bid increase to £154.7m (or 65.77p per share). NewRiver raised £50.2m in a placing at 80p per share to part fund the proposed acquisition.
The board of Triple Point Social Housing REIT appointed Atrato Partners as the company’s new investment manager, replacing Triple Point. It decided to part ways with Triple Point after a launching a review of the investment management arrangements earlier this year. Atrato, which also manages Supermarket Income REIT and (until recently) Atrato Onsite Energy, hired a team of social housing experts a couple of years ago ahead of a possible launch of a new social housing fund. The appointment of Atrato is subject to agreeing a new investment management agreement (IMA). The board said it was satisfied that the new IMA will deliver “significant cost savings” whilst maintaining the existing high levels of service provision. The formal transition of the investment management services from Triple Point Investment Management to Atrato is expected to occur in January 2025.
PRS REIT announced that chairman Steve Smith will step down at its forthcoming AGM, with Robert Naylor and Chris Mills joining the board as non-executive directors. The move follows a requisition notice from a group of shareholders requesting Smith’s removal. The search for a new chairman has commenced.
SEGRO announced the pricing of a €500m senior unsecured bond issue for an eight-year term priced at 123 basis points above euro mid-swaps with an annual coupon of 3.5%. The bond issuance was over six times subscribed at peak. The proceeds of the issue will principally be used to refinance existing indebtedness, with a focus on bank loans maturing in early 2026. As a result, the average cost of debt (including joint venture debt at share) falls to 2.6% (from 2.7% at 30 June 2024) and the average duration increases to 7.3 years (from 6.8 years at 30 June 2024).
Urban Logistics REIT refinanced its existing £100m term loan and £51m revolving credit facility (which was due to mature in August 2025) with a £140m term loan and a £50 million revolving credit facility. The debt comes with a fixed interest rate of 4.48% until August 2025 and 4.98% until maturity in 2027.
August’s major news stories – from our website
- Picton Property maximises office sale value
Picton Property maximised the sale price of a vacant office, having gained planning permission to convert the property to student accommodation. A sale was agreed in October, with the price dependent on the number of beds secured in planning. The 706-bed scheme means the price will be the maximum of the agreed range. As such, the transaction will be accretive to Picton’s June 2024 NAV.
- LondonMetric splashes £78m on six urban logistics assets
LondonMetric acquired six single-let urban logistics properties for £78.0m, reflecting a blended net initial yield of 5.8%, which rises to 6.9% over the next two years. The portfolio, which totals 526,000 sq ft and is located in Stafford, Banbury, Romford, Southampton, Bristol, and Aberdeen, was acquired from a “FTSE 100 pension fund”.
- Urban Logistics REIT puts refi proceeds to work with £42.2m of acquisitions
Urban Logistics REIT acquired four assets (using proceeds from its refinancing – mentioned on page 3) for £42.2m at a blended net initial yield of 6.6% and a blended reversionary yield of 7.1%.
- Big Yellow sells Battersea land to residential developer
Big Yellow Group announced the sale of land surplus to requirement adjacent to its Battersea, London store for £30.91m for residential development.
- Home REIT continues portfolio auction
Home REIT sold a further 200 properties from its portfolio at a series of public auctions for a total of £36.9m, representing 15% of the company’s portfolio by value. The sales mean that the company has now sold 1,501 properties for a combined £216.9m.
- Impact Healthcare REIT completes work out of troubled tenant
Impact Healthcare REIT completed the transfer of four care homes located in Scotland to a new tenant, Fulcrum Care, on long-term leases. The homes had been operated by Melrose Holdings following their transfer from the Silverline Group as part of a recovery plan first announced by the group in June 2023. With this transfer, all seven of the former Silverline homes have now been transitioned to long-term operators.
- Grit Real Estate sells Mauritius hotel resort
Grit Real Estate Income Group continued its non-core asset sell-off with the sale of the Tamassa resort, a Mauritian hospitality asset, at an implied net initial yield of 6.5%. It said that it was also in preliminary discussions for the disposal of a further four non-core retail and non-strategic corporate accommodation assets. Proceeds from these sales will be used to reduce the company’s more expensive debt facilities.
- CLS lets lab space in Hamburg
CLS Holdings leased 8,939 sqm (96,219 sq ft) of office and laboratory space at Fangdieckstrasse 75 in Hamburg, Germany, to the Hamburg Institut für Pathologie und Hämatopathologie (HPH).
- abrdn Property Income sells Manchester office at a discount
abrdn Property Income Trust sold 101 Princess Street, an office in Manchester, for £4.3m – at a discount of 2.3% to the June 2024 valuation (and 11.3% below the March 2024 valuation).
- Custodian Property Income REIT disposes vacant office
Custodian Property Income REIT sold a vacant office unit in Castle Donington for £1.75m, in line with the 30 June 2024 valuation.
Visit https://www.QuotedData.com for more on these and other stories plus analysis, comparison tools and basic information, key documents and regulatory announcements on every real estate company quoted in London
Managers views
A collation of recent insights on real estate sectors taken from the comments made by chairmen and investment managers of real estate companies – have a read and make your own minds up. Please remember that nothing in this note is designed to encourage you to buy or sell any of the companies mentioned.
Retail
Supermarket Income REIT
Ben Green, investment adviser:
The UK grocery market has highlighted its defensive, non-discretionary characteristics this year with sales growth of 5.8% against a very strong inflation-led comparator of 9.2% for 2023. Total grocery market sales are forecast to be £251.6bn in 2024, an increase of £59.6bn or 31% since pre-pandemic levels in 2019.
While the sector growth will continue to ease as inflation moderates in 2025 in year-on-year percentage terms, the Institute of Grocery Distribution (IGD) projects continued healthy absolute sales growth in the coming years. With forecast annual growth of around 3% to 2029, the UK grocery market is expected to reach £296bn in the same year.
The growth from 2019 out to IGD’s projected total sales figure would represent a 4.4% compound annual growth rate. The future projected growth is in line with long run RPI/CPI projections and underlines the grocers’ ability to efficiently pass through inflation to consumers. The increased sales revenue at the store level will support higher rents over the medium term.
This track record of strong growth in the sector has attracted new institutional investors into the grocery real estate investment market and has also seen a continued programme of store buybacks by Tesco with four stores purchased by the grocery operator in the year.
Online grocery now accounts for 12% of the total market. Online market share has fallen back from the pandemic peak of 15%, but having rebased to 12%, it is still one of the fastest growing channels according to Kantar. The online channel was permanently enlarged throughout the pandemic – over 50% of online grocery shoppers during 2020 were new to the channel and much of this change in consumer behaviour has been sticky.
Omnichannel stores are optimally placed to benefit from the combined growth of both in store sales and online. Operators are able to increase online capacity at low cost and benefit from shorter drive times due to their existing omnichannel stores’ proximity to customers. This results in a greater number of deliveries per hour and drives greater profitability than the centralised fulfilment (or ‘dark store’) model. Tesco recently announced that online sales participation is stable at 13% of UK sales with basket sizes up 4.2% and online sales up 10%. The return to growth of the online channel is evident in the latest IGD forecast which predicts growth of 27% (£6bn) by 2029.
Large format omnichannel stores, such as those which the company targets, have captured the largest share of sales growth in the sector since 2019. In that time the total UK grocery sector has increased from £192bn in 2019 to £252bn, with omnichannel supermarkets accounting for £20bn of that growth.
Importantly, this growth is being generated from existing store estates meaning this is like-for-like sales growth, resulting in improved sales densities and enhanced profitability at the store level. From a landlord perspective, this ensures that rents remain affordable for tenants, particularly as sales growth has been running ahead of capped rental uplifts. It also provides a strong backdrop for higher rents in the future.
Large format stores have the scale to offer the full product range giving customers the widest product choice, whilst also offering the best value to customers through in-store only and loyalty scheme product offers. In the current inflationary environment shoppers are looking to achieve best value on their purchases. Tesco and Sainsbury’s loyalty schemes which offer attractive discounts to members, have been very successful Sainsbury’s reporting that nine out of ten £80+ weekly shopping baskets are sold to customers using their Nectar loyalty card.
Healthcare
Target Healthcare REIT
Kenneth MacKenzie, investment adviser:
The UK care home investment market remained muted relative to the pre-2022 average. Some of the major investors paused activity, with availability of capital and the yield available relative to the risk-free rate being constraining factors. Scarcity of quality product in the market has also been a key theme with sales activity in the main driven by investment holders requiring to re-balance their asset weightings and to generate liquidity. There has been competitive tension for prime assets, with lower demand for sub-prime where pricing has moved out towards net initial yields of 10%. Care homes with strong ESG credentials remain attractive targets for investment activity.
On pricing, the reaction to the 2022 mini budget was an initial outward yield movement of 40-50 bps which then softened marginally to 30-40 bps. This reflects what we observed in the transactional market for deals completing, and also in the portfolio EPRA topped-up NIY of 6.20% compared to that of two years ago at 30 June 2022 of 5.82%. Prime care homes have once again proven to be less volatile than All Property whilst still providing returns at an attractive spread to the risk-free rate.
Change of government and the future of social care
During the July 2024 General Election campaign, the Conservatives chose to promote their multi-year funding settlement to Local Authorities as well as their commitment to implement the previously postponed ‘Dilnot’ cap on social care costs from October 2025. Labour mirrored the same care cap proposal along with the creation of a National Care Service, and an intention to establish a fair pay agreement across the sector.
Subsequent to its win the new Labour government cancelled the proposed ‘Dilnot’ cap on care costs and proposed instead a much broader rethink of policy, likely including a Royal Commission on the matter. Private operators may be encouraged by pre-election comments of Wes Streeting, (now) Secretary of State for Health and Social Care, who said he was ‘pragmatic’ about the use of private health in support of the NHS going forward. Also, it is recognised by government that care homes and the wider social care sector are an essential aide to the smooth running of the NHS. The Labour government has set a priority on improving the flow through NHS hospitals – including by allowing earlier discharges and the likely consequence of this will be to increase demand for care home provision.
Residential
Triple Point Social Housing REIT
Chris Phillips, chairman:
We anticipate a move towards more supportive market conditions for real estate valuations, with inflation close to the Bank of England’s 2.0% target and the resultant initial 25bps reduction in the base rate to 5.0% in August.
Alongside the onset of more supportive market conditions following the general election in July, we can look forward to a period of greater political stability, which is much needed in order for the UK to make meaningful steps to address its housing crisis. The lack of suitable accommodation in the UK reflects a critical societal challenge and we welcome the Labour government’s focus on delivering social housing and their target of building 1.5 million new homes within their first five years of government. This ambition will require close collaboration with private capital and our latest construction project in Chorley, which we have developed in conjunction with Golden Lane a new Registered Provider (RP) partner, serves as a timely reminder of the positive impact that private capital can have when working in conjunction with a leading RP in response to an identified local need.
Whilst increased political stability should be beneficial in terms of housing delivery, it is important to recognise that Specialised Supported Housing (SSH) has always been relatively well-insulated from the risks of political change. It benefits from cross-party support as an effective means of promoting greater independence and better outcomes for individuals with care and support needs, whilst enabling them to live within their local community.
Development
Harworth Group
Lynda Shillaw, chief executive:
Harworth’s focus markets are the industrial & logistics (land sales, direct development and investment) and residential (land sales) sectors. Both remain fundamental to enabling growth in the UK economy, and the policy themes of the new government reflect the need to drive investment across the UK to create new homes and jobs and decarbonise the economy. While it is early days, in general the mood feels more positive across both of our markets, as alongside political stability, we have seen inflation ease and the first rate cut take effect in August: all of which are key to driving an increase in investor interest in the UK. We do however remain watchful until more detail of the new government’s plans and its funding proposals are visible, and any impact on the industry can be assessed.
In the industrial & logistics sector, the structural drivers of demand seen in recent years remain intact, driven by the growth of e-commerce, on-shoring and near-shoring still present coupled with an increasing focus amongst occupiers on securing modern and sustainable spaces for manufacturing, with power connection and availability being a key factor. Recent research from Savills shows that prime yield indicators have remained broadly stable with a positive outlook for the industrial sub-sectors and are expected to remain stable at least until the October 2024 Budget, or until further rate cuts. The expectation of further rate cuts and stable pricing, combined with rising confidence in economic fundamentals that drive tenant demand, could create the environment for improvements in yields in this sector towards the end of the year, although this is by no means certain.
In the residential sector, consumer demand remains subdued with mortgage approvals still slightly below pre-pandemic levels as a result of prevailing mortgage costs, challenging affordability, and lower consumer confidence, albeit we have seen mortgage rates fall in recent months. Nationwide data recently showed that house prices continue to increase, with annual growth reaching 2.1% in the year to July.
Offices
Regional REIT
Stephen Inglis, investment manager:
Avison Young estimate that take-up of office space across the nine regional markets reached 1.6 million sq ft in the second quarter of 2024, bringing the half year total to 3.5 million sq ft, 7.4% above the five-year average take-up for the first six month of the year. City centre activity accounted for the largest proportion of take-up (61.6%) at 2.2 million sq ft, 9.2% above the five-year average. When comparing this to the same period in 2023, city centre take-up as a proportion of total take-up has increased from 58.5% in H1 2023. In the first half of 2024 approximately 1.3 million sq ft was transacted in the out-of-town market, 4.6% above the five-year average, and accounting for 38.4% of total H1 2024 take-up.
Occupational demand in the regional office markets continued to be driven by the professional services sector, which accounted for the highest proportion of take-up at 20.3% in the first six months of 2024. Moreover, public services, education & health, and technology, media & telecoms sector accounted for the second and third largest proportion of take-up in the regional cities, accounting for 16.6% and 14.2%, respectively. Savills research indicates that although office market sentiment is going through a period of change, the same key sectors continue to drive demand for UK office stock as the three most active sectors prior to the Covid-19 pandemic remain in the top three in the first half of 2024.
According to Savills, there was a rise in availability for regional office stock across six regional UK markets, with total availability in H1 2024 to 10.5 million sq ft. Despite the uptick in availability in the first half of 2024 supply across the six regional markets remains 3.5% below the long-term average. Research from PwC suggests that there is likely to be a number of stranded assets, given an EPC rating of C will be required by 2027 in order to let a property and then a rating of B from 2030. Currently, approximately 8.9% of office properties in the UK are unlettable as they have an EPC rating of F or G. Additionally, 50.0% (261.5 million sq ft) of office floor space in the UK is rated D below, which PwC suggest may be classed as ‘stranded’ going forward due to the extensive capital expenditure (capex) that would be required, indicating the scale of the challenge faced by landlord. However, lower returns due to subdued market and subsequently lower rental growth will result in investors finding it more difficult to justify capex. Ultimately, this could lead to a fall in office stock going forward as stranded assets are repositioned for alternative use. At present, only 10.8% of assets have and EPC rating of B or above.
In terms of speculative development, it is estimated that approximately 3.4 million sq ft of office space is current under construction in the Big Nine regional markets (Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester, and Newcastle), down from 3.7 million sq ft for the same period last year with Manchester, Bristol, and Leeds accounting for 27.4%, 20.1% and 12.7%, respectively. Approximately 32.6% of office buildings currently under construction are already pre-let.
According to monthly data from MSCI, rental value growth slowed for the rest of UK office markets in the 12-month ended June 2024 with growth of 1.8%, 5.0% above trend. Similarly, central London offices experienced a fall in rent growth to 1.9% over the same period. Avison Young expects rental growth to continue across most markets for the remainder of 2024 and into 2025. Demand for quality office space has put an upward pressure on rents, with growth of 4.5% recorded across the Big Nine regional markets in the first half of 2024, with average headline rents now sitting a £38.14 per sq ft, according to research from Avison Young.
Diversified
abrdn Property Income Trust
James Clifton-Brown, chairman:
Following the downward trajectory of UK inflation during the second half of 2023, there were expectations at the start of 2024 that we would see a reasonably swift move towards an interest rate cutting cycle. What transpired was somewhat different, with inflation lingering doggedly above the Bank of England target until the end of the second quarter. This uncertainty impacted investor confidence and manifested itself in a reduced level of market activity throughout the first six months of the year.
Since then, we have seen a rate cut at the beginning of August and a feeling, certainly in some sectors of the UK Real Estate market, that investors are feeling more confident. However, whilst there weren’t any significant global macroeconomic shocks in the first half of 2024 like those we have experienced in recent years, the continuing war in Ukraine and the escalation of tensions in the Middle East could still impact any fragile market recovery.
After four quarters of capital declines through 2023, the MSCI Quarterly Index reflected an arrest of this trend with a decline of 0.6% in the first quarter and then 0.0% in quarter two. This resulted in positive Total Returns of 0.6% and 1.2% for the first two quarters of the year respectively.
This recovery masks the persistent polarisation we see between sectors, with industrial and retail providing positive total returns, whilst offices continue to lag with further negative capital growth.
In the industrial sector, the strong dynamics of low supply and reasonable tenant demand has meant that rental growth is still evident, albeit at more muted levels than seen previously. Investors continue to be attracted to this rental growth, and competition amongst buyers is driving a recovery in capital values.
The positive retail sector performance has largely been driven by a higher relative income return and capital growth in the retail warehouse sub-sector. Whilst high street retail continues to struggle with pressures on household discretionary spend, out-of-town retail continues to benefit from an increase in demand from discount and food retailers. Vacancy rates have reduced across the retail warehouse sector and this has led to rental growth, fuelling investor demand.
In contrast, the office sector continues to grapple with occupier uncertainty as companies work out a suitable strategy to incorporate hybrid working. Despite the differing approaches being taken, the result is inevitably going to be a lower overall demand for office space. Due to this, investors have been shying away from the sector meaning there has been a dearth of transactional evidence. Without deal activity for valuers to form their views, it is believed that the market has fallen further than valuations.
Europe
abrdn European Logistics Income
Tony Roper, chairman:
The prospects for the logistics sector have significantly improved. This follows a period of higher interest rates which had resulted in increased debt costs and significant yield expansion. As greater visibility emerges in terms of the future macroeconomic backdrop, we believe the combination of strong underlying market fundamentals and positive structural drivers will attract capital to the European logistics sector.
The European logistics occupier market remains active with good leasing momentum, in part a reflection that Europe is at a much earlier stage of its supply chain reconfiguration and that e-commerce penetration still some way behind the UK. The recent Savills European Real Estate Logistics Census indicated that the reshoring trend, whilst expected to be a slow burn, when combined with nearshoring as well as diversifying supplier bases and routing, is likely to have a persistent and significant impact on real estate requirements. This should lead to a sustained increase in take-up over the long term together with the continued growth in the European ecommerce story.
Laboratory
Life Science REIT
Claire Boyle, chair:
Despite a resilient first quarter, there was a marked slowdown in occupational markets in the second quarter of 2024 with less than 40,000 sq ft of life science space leased across the Golden Triangle. However, echoing our own experience, just over 130,000 sq ft went under offer in the second quarter, pointing to a rebound in the third quarter.
Signs are emerging that venture capital (VC) funding is also starting to pick up. VC investment in life science companies was at its strongest in the second quarter since the pandemic with a total of £0.6bn raised. This improvement was reflected in follow-on financings for life science companies, with £1.2bn secured in the first half of 2024, exceeding the total amount raised in 2023. The trend of big pharma companies acquiring or investing in smaller biotech businesses to drive R&D has continued, with a particularly strong first quarter including notable acquisitions by Gilead Sciences, Novartis and Astrazeneca all over $2.0bn. The second quarter was quieter but included a $3.0bn takeover of Eyebiotech by Merck. In the UK, the new government has signalled its support for life sciences with a raft of proposals which should encourage growth and innovation, including a longer term approach to funding, modernising the regulatory regime and leveraging the unique NHS data set to make the UK a leader in clinical trials.
Real estate research notes
A result analysis note on Urban Logistics REIT (SHED). The company reported resilient performance in a rising interest rate environment, with its focus on growing earnings to provide dividend cover.
An annual overview note on Lar España Real Estate (LRE SM). Impressive rental growth allowed the company to declared the largest dividend in its 10-year history.
An annual overview note on Grit Real Estate Income Group (GR1T). Its latest act of corporate engineering has opened the door for new NAV and earnings accretive developments.
An update note on Tritax EuroBox (EBOX), which is sailing in calmer waters as demonstrated by a portfolio valuation that has changed little and a 30% uplift in earnings that now fully covers its 8.6%-yielding dividend.
IMPORTANT INFORMATION
This note was prepared by Marten & Co (which is authorised and regulated by the Financial Conduct Authority).
This note is for information purposes only and is not intended to encourage the reader to deal in the security or securities mentioned within it. Marten & Co is not authorised to give advice to retail clients. The note does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.
Marten & Co may have or may be seeking a contractual relationship with any of the securities mentioned within the note for activities including the provision of sponsored research, investor access or fundraising services.
This note has been compiled from publicly available information. This note is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of this note is prohibited.
Accuracy of Content: Whilst Marten & Co uses reasonable efforts to obtain information from sources which we believe to be reliable and to ensure that the information in this note is up to date and accurate, we make no representation or warranty that the information contained in this note is accurate, reliable or complete. The information contained in this note is provided by Marten & Co for personal use and information purposes generally. You are solely liable for any use you may make of this information. The information is inherently subject to change without notice and may become outdated. You, therefore, should verify any information obtained from this note before you use it.
No Advice: Nothing contained in this note constitutes or should be construed to constitute investment, legal, tax or other advice.
No Representation or Warranty: No representation, warranty or guarantee of any kind, express or implied is given by Marten & Co in respect of any information contained on this note.
Exclusion of Liability: To the fullest extent allowed by law, Marten & Co shall not be liable for any direct or indirect losses, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note. In no circumstance shall Marten & Co and its employees have any liability for consequential or special damages.
Governing Law and Jurisdiction: These terms and conditions and all matters connected with them, are governed by the laws of England and Wales and shall be subject to the exclusive jurisdiction of the English courts. If you access this note from outside the UK, you are responsible for ensuring compliance with any local laws relating to access.
No information contained in this note shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction.