Real estate investment trusts managed by Abrdn and Columbia Threadneedle have posted falls of 20% in net asset value during a tough end to 2022, with one fund manager saying the fourth quarter was “one of the most significant” ever for value declines.
Abrdn Property Income Trust posted net asset value per share of 84.8p as of the end of December, down by a fifth over the final quarter of 2022, and a portfolio valuation that fell by 14% to £416.2m over the same period.
Most of the company’s portfolio by net assets – £227.5m, or 70% – is in the industrial sector. Valuations for those assets fell by 17.5% over the fourth quarter, the sharpest fall of any sector.
The company’s office investments posted a 14.5% fall in value, ranging from a 13.4% drop for regional offices outside of the South East to an 18.5% drop for those in London’s West End.
“While prime and secondary prices moved out in tandem during 2022, prime pricing is expected to stabilise in 2023, while secondary pricing is expected to see further capital value declines,” the company said. “While this trend has occurred in previous market cycles, we expect the divergence in pricing for some sectors to be more pronounced this time as occupier and investor demand narrows.”
It added: “The pace of repricing for UK real estate will mean opportunities will arise over the course of 2023, particularly as the path of monetary policy turns more accommodative. Those sectors that benefit from longer-term growth drivers, such as the industrial and living sectors, will see greater demand return and at more attractive pricing levels. The repricing of long-income real estate investments will also provide an attractive opportunity for investors, particularly when yields for gilts and inflation-linked bonds move lower in line with the expected policy rate cuts from the Bank of England.”
In a trading update, Columbia Threadneedle’s CT Property Trust also reported a fall of a fifth in net asset value per share, to 95.4p. Its portfolio capital value decreased by 18.4% over the fourth quarter of last year.
Industrial assets led the fall, down by 21%, with retail warehouse and office values both dropping by 15%. High street retail fell by 8%.
Fund manager Matthew Howard said: “The rapid repricing of the wider UK real estate market means that Q4 2022 is one of the most significant quarters for capital value declines on record.
“Wider UK economic pressures and a highly inflationary environment saw the Bank of England base rate and gilt yields rise from the historic and sustained lows of recent years. This has placed upward pressure on yields for UK commercial property, which has been compounded by the increased cost and lower availability of debt and some areas of distressed selling. Against this backdrop, the autumn was a period of ‘pricing discovery’ across commercial markets, although towards the end of the year we did see an uptick in transactional activity on quality assets.”
Like Abrdn Property Income Trust, the team at CT Property Trust is eyeing new investments as values fall.
“As we enter 2023, we expect to see continued pricing pressure in parts of the commercial real estate market,” said Howard. “An outcome of cyclical downturns is the opportunity to acquire quality assets that offer attractive pricing on a long-term basis. The company maintains a conservative level of debt and our current cash position offers the potential to invest in new assets to enhance company income where and when we see value.”
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