ch
CH
Switzerland
fr-CH
ch_inst_classes
inst
Institutional
fr
fr
trucks

Insights

Why it’s time to look again at real estate

George Gay
George Gay
Fund Manager

With August’s 0.25% cut from the Bank of England, we have moved past peak rates for this cycle. As a leveraged asset class, real estate enjoys a tailwind from falling rates. So, what is in store from here and what should investors consider when reassessing the merits of property allocations in their portfolios?

Rates down, real estate up?

Analysis of the last four rising cycles suggests that there is scope for real estate equities to outperform relative to the wider market as borrowing costs begin to tick downwards. The chart shows this potential with real estate equities outperforming broader equities by an average of 8% in the 12 months following the last rate rise.

Performance of real estate equities vs. global equities - after the last four cyclical peaks in interest rates
Performance of real estate

Source: Columbia Threadneedle Investments

Well positioned even if rates remain elevated

We see little likelihood of interest rates returning to their post GFC lows. More likely is a return to longer run average levels against a backdrop of moderate inflation. But what if we witness a resurgence of inflationary pressure – would this place property business models under strain? Within our portfolio we are selective about the sort of businesses we invest in. We look for quality companies operating in sectors and locations characterised by supportive supply/demand dynamics. Management teams are crucial – the right expertise, approach, and alignment of interest are all vital components. Our listed real estate exposure has an average loan to valuation of around 33% and with debt costs capped/fixed to 2026, their immediate prospects are not dependent on the broader direction of rates.

Quote open

Deciding how and when to start the transition from accumulating wealth into decumulation and retirement is one of the most challenging financial decisions an individual will make in their lifetime.

Marcus Phayre-Mudge, Portfolio Manager

Mind the gap – a buying opportunity!

We have seen a welcome recovery in real estate equity values from their lows of 2023 but in broad terms, there remains a dislocation between share valuations and the true value of underlying property assets. In our view, this is a timely juncture for upping weightings to real estate. But as active investors we would always argue against doing so through a broad-brush allocation – not all real estate is created equal, so selectivity is key.

Once in a decade value proposition? European listed real estate materially underperformed wider equities

Source: Columbia Threadneedle Investments

Near term, large discounts between share prices and underlying asset valuations certainly offer scope for a capital value kicker. Longer-term however, it is income streams that will be the key driver and seeking out pockets of potential rental growth is our primary focus. In key markets we see little oversupply – a function of a range of factors not least a non-existent development cycle 2008-14 post the Global Financial Crisis (GFC) and a covid-deferred cycle 2020-21. Where supply of new space is limited, and where tenant demand is stable, strong incumbent firms look well placed. We see a positive outlook for sectors including logistics, data centres, hotels,  prime retail in cities with high tourist footfall and even prime office markets in key central business district (CBD) areas such as London’s West End and core central Paris.

Industry shift endorses our hybrid approach

By investing in a blend of listed and physical real estate the CT Property Growth & Income Fund can tap into the best of both worlds and adopt a more active and flexible approach.

Flexible property investing with minimal cash drag
flexible property investing

Source: Columbia Threadneedle Investments

And being flexible is exactly what we have been doing in the last 18 months. Since January 2023 we have tactically sold seven physical assets for £53 million and reinvested proceeds into listed European real estate securities – a move that, we believe, positions the portfolio well to take advantage of pricing differentials between the two markets.

Source: Columbia Threadneedle Investments. Data as at 10.06.24

How are we targeting relative value?

We launched our hybrid strategy in 2005 – a structure and approach designed to counter the challenges faced when seeking to offer open-ended, daily dealing access to commercial property.  In subsequent years we’ve seen the merits of doing this – and, during liquidity events, the pitfalls associated with more traditional daily dealing (liquid) funds that invest purely in physical property (illiquid assets). The broader industry has belatedly responded. Alongside some high-profile fund closures, a growing number of vehicles are transitioning to a blend of physical property and real estate equities. We view this evolution as an endorsement of the approach we implemented almost 20 years ago, and it will be interesting to see how successfully (and quickly) they adapt.  For investors considering increasing real estate weightings against a backdrop of falling rates, we would make the case for a hybrid approach that has a long track record of success. 

Interested in hearing more?

Thèmes clés

Abonnez-vous à nos perspectives

Tirez le maximum de nos e-mails marketing en indiquant le type d'articles et de contenu que vous souhaitez recevoir de notre part.

Nos derniers articles

It’s a sector which we’re positive on, for several reasons ranging from regulation and valuations to fundamentals.
There has been a major decline in optimism about UK economic prospects in recent months.
Chancellor Rachel Reeves is right to identify excessive risk aversion as a critical issue in UK pensions. Her solution is consolidation, but while boosting scale this way is helpful, it is no magic wand.
Share article
Sujets clés
Sujets connexes

PDF

Why it’s time to look again at real estate

Important information

© 2024 Columbia Threadneedle Investments

For professional investors. For marketing purposes. Your capital is at risk. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. Not all services, products and strategies are offered by all entities of the group. Awards or ratings may not apply to all entities of the group.

This material should not be considered as an offer, solicitation, advice, or an investment recommendation. This communication is valid at the date of publication and may be subject to change without notice. Information from external sources is considered reliable but there is no guarantee as to its accuracy or completeness. Actual investment parameters are agreed and set out in the prospectus or formal investment management agreement.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In the UK: Issued by Threadneedle Asset Management Limited, No. 573204 and/or Columbia Threadneedle Management Limited, No. 517895, both registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A., registered with the Registre de Commerce et des Sociétés (Luxembourg), No. B 110242 and/or Columbia Threadneedle Netherlands B.V., regulated by the Dutch Authority for the Financial Markets (AFM), registered No. 08068841.

In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Eclairages connexes

5 décembre 2024

Joanna Tano

Head of Research, Europe, Real Estate (EMEA)

2025 Global Real Estate Outlook: Is property at a turning point?

Global property prices have broadly stabilised. With interest rates heading lower, is real estate at a turning point?
23 octobre 2024

Joanna Tano

Head of Research, Europe, Real Estate (EMEA)

UK Real Estate: Talking Points October 2024

Welcome to our quarterly snapshot of current real estate market trends.
18 septembre 2024

Joanna Tano

Head of Research, Europe, Real Estate (EMEA)

UK Real Estate – Overview Q2 2024

Total returns for the UK commercial property market turned positive in Q1 2024.
Read time - 3 min
9 décembre 2024

European banks: strong fundamentals and pockets of value

It’s a sector which we’re positive on, for several reasons ranging from regulation and valuations to fundamentals.
9 décembre 2024

Steven Bell

Chief Economist, EMEA

Is the UK heading for recession?

There has been a major decline in optimism about UK economic prospects in recent months.
9 décembre 2024

Christopher Mahon

Head of Dynamic Real Return, Multi-asset

Consolidate with caution - Too much focus on scale could come at the expense of innovation

Chancellor Rachel Reeves is right to identify excessive risk aversion as a critical issue in UK pensions. Her solution is consolidation, but while boosting scale this way is helpful, it is no magic wand.

Important information

© 2024 Columbia Threadneedle Investments

For professional investors. For marketing purposes. Your capital is at risk. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. Not all services, products and strategies are offered by all entities of the group. Awards or ratings may not apply to all entities of the group.

This material should not be considered as an offer, solicitation, advice, or an investment recommendation. This communication is valid at the date of publication and may be subject to change without notice. Information from external sources is considered reliable but there is no guarantee as to its accuracy or completeness. Actual investment parameters are agreed and set out in the prospectus or formal investment management agreement.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In the UK: Issued by Threadneedle Asset Management Limited, No. 573204 and/or Columbia Threadneedle Management Limited, No. 517895, both registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A., registered with the Registre de Commerce et des Sociétés (Luxembourg), No. B 110242 and/or Columbia Threadneedle Netherlands B.V., regulated by the Dutch Authority for the Financial Markets (AFM), registered No. 08068841.

In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Vous pourriez aussi aimer

Approche d’investissement

Le travail d’équipe est fondamental à notre processus d’investissement qui est structuré de manière à évaluer et mettre en pratique de solides idées d’investissement pour nos portefeuilles.

Fonds et VL

Columbia Threadneedle Investments dispose d’une gamme complète de fonds d’investissement répondant à un large éventail d’objectifs.

Approche d’investissement

Le travail d’équipe est fondamental à notre processus d’investissement qui est structuré de manière à évaluer et mettre en pratique de solides idées d’investissement pour nos portefeuilles.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Woman listens to music through headphones
Play Video

CT Property Trust- Fund Manager Update

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque laudantium

Veuillez confirmer quelques détails vous concernant pour visiter votre centre de préférences

*Champs obligatoire

Une erreur s'est produite veuillez réessayer

Merci. Vous pouvez maintenant visiter votre centre de préférences pour choisir les informations que vous souhaitez recevoir par e-mail.

Pour afficher et contrôler les informations que vous recevez de notre part par e-mail, veuillez visiter votre centre de préférences.