Are real estate’s false dawns coming to an end?

TR Property fund manager Marcus Phayre-Mudge has joined the growing list of investors and commentors that believe recovery for real estate may just be around the corner. His optimism comes as TR Property Investment Trust, which specialises in listed real estate across the UK and Europe, releases positive results covering the year to 31 March 2024. TR Property’s share price return for the year was 22.9%, alongside a net asset value total return of 21%. Kate Bolsover, chairman of TR Property, said: “There is no denying that commercial real estate became unfashionable when interest rates began to rise. But as TR Property’s renewed outperformance shows, investors are beginning to differentiate between the less desirable elements of the sector and the companies that our manager seeks out – that is, companies that own quality assets and have strong balance sheets.” Phayre-Mudge added: “These false dawns have led to many investors remaining on the sidelines, awaiting harder evidence of base rates falling. Our central case is that this point is drawing ever closer but, crucially, our positioning and optimism is not dependent on major reductions in interest rates. The companies we own have balance sheets which can withstand rates remaining at current levels. “The spike in takeover activity this past year shows acquirers are rushing in to take advantage, where public markets have left quality assets languishing at significant discounts.” TR said its exposure to the heightened merger and acquisition activity was among the key contributors to 2023/24’s strong performance, with four transactions involving investee companies during the year, and a fifth proposed post-year end. Looking ahead, TR said its optimism was not predicated on substantial reductions in interest rates but on more stability in the monetary environment. It said there were a number of factors that would buoy interest in the listed property sector, including the restructure of open-ended PAIFs and that it was becoming harder to be a viable private landlord in the UK. Retail investors are therefore searching for new ways to access the reliable income and leveraged returns that property investments can provide, said TR. “Real estate equities are the solution for those seeking liquid exposure to the sector,” said Phayre-Mudge. “Liquidity comes with market size, and the creation of fewer, larger companies should lead to more investor appetite. This consolidation is under way, but there is scope for much more.” He added: “Whipsawing investor sentiment towards our corner of the equity market remains frustrating – but it provides opportunity for investors to enter the fray, before a wider realisation that demand for good quality real estate is very still strong. Our portfolio positioning reflects our strong belief in this rental growth.” Photo © TR Property