UK REITs are on the verge of staging a bounceback amid speculation that the Bank of England will cut interest rates imminently.
After a torrid couple of years, market analysts and fund managers suggest that now could be the right time to invest in REITs.
According to the Association of Investment Companies, property prices are stabilising and many assets across the spectrum are enjoying robust rental growth, which is helping underpin attractive yields. There has also been a flurry of takeover and mergers in the property sectors this year as directors seek scale and liquidity in a bid to cut costs, strengthen balance sheets and appeal to big institutional investors.
Andrew Rees, investment trust research associate at Deutsche Numis, said: “The market is throwing up a selection of opportunities. The worst of the correction in asset prices is largely over. The industrial and logistics sector is still performing well because demand for last-mile logistics facilities is still strong. Funds investing in these properties are still capturing healthy rent uplifts on lease expiry which is helping to deliver sustained earnings growth.”
Emma Bird, head of investment trust research at Winterflood Securities, commented: “You can sense the pent-up demand on this sidelines. In November last year, share prices spiked when UK ten-year gilt yields fell by 39 basis points as hopes of peak rates were supported by better-than-expected inflation prints and rates were kept on hold.
“On that news, the UK commercial property sector rebounded. While that bounce has since unwound, it suggests that there is a notable amount of capital waiting to re-enter the property sector once the macro outlook becomes clearer.”
According to Richard Shepherd-Cross, the rebound in REITs is not just a matter of sentiment, but driven by the health of occupational markets, with falling vacancy rates and growing rents across all sectors.
“You can tell there is money waiting to come in; every time the macro news suggests a higher probability of a rate cut, shares rally. When the odds diminish, they fail. The market is literally twitching with anticipation and prices could ramp up significantly once we have more clarity,” he added.
