Brexit effectively ended the long commercial property bull market for mainline retail centres and London offices – the two biggest weightings in the listed sector.
Conversely, smaller but material niches continue to see growth driven by robust fundamentals, best-in-class operators and superior income characteristics – particularly given the continued wide gap between property yields and financing costs. The industrial & logistics names continue to be our preferred “mainstream” sector, while student accommodation, primary healthcare and PRS also share many of these characteristics.
Property share price performance has been all over the place recently, with some stocks on 50% discounts and others on premiums of up to 20%. Large discounts are typical when returns look muted and we continue to favour stocks where we either anticipate meaningful NAV growth and/or see high, sustainable and growing dividend streams.
Overall, the sector warrants no more than a neutral rating in our opinion with the emergence of GDP growth prospects far below long-term averages and the fear of capital value declines balanced by the powerful income characteristics of an increasingly large part of the sector.
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