Takeaways from the session included:
Property’s long-term track record suggests it should be considered as a key portfolio component. It is an asset class that reflects characteristics of both equity and fixed income – the former thanks to its pro-cyclical nature and the latter by virtue of its steady income generating capability.
Apart from UK retail (see below) the team believe property is attractive right now. In terms of fundamentals, there’s a clear yield advantage over comparable bond assets and whereas income from fixed income is inherently ‘fixed’, underlying rental growth – driven by strong tenant demand and lack of supply – can boost yields and provide a kicker to capital vales. Finding pockets of rental growth is key, however.
Valuations also offer support in many instances – there are many companies trading below net asset value with scope for earnings growth and low debt costs further supporting our upbeat assessment.
UK retail sector’s woes are well known. A shift to online shopping and changing consumer behaviours (think Deliveroo rather than dining out) combined with overly inflated valuations to produce a dangerous mix. It is a sector we are avoiding. Look further afield though and picture is less bleak. Retailers in Europe, for example, typically benefit from shorter index-linked leases and share prices never reached the heights they did in the UK. Opportunities can be found.
Real estate securities provide a diverse and liquid opportunity set for the active manager to target. Yes, shares can be volatile in the short term, but analysis shows that with holding periods of over one year, the correlation between listed and physical property increases. In short, listed real estate = real property
Our European remit allows us to target attractive locations across the continent. Favoured themes currently include:
- Logistics – supply is tight, especially in urban areas geographically close to consumers in the supply chain.
- Healthcare in the UK, where great businesses providing access to long index-linked income streams can be found.
- Alternative property sectors such as student accommodation, budget hotels and the private rented sector in the UK and countries like Germany and Sweden.
Want to know more? Listen to the full webinar here or get in touch with us directly.