Real Estate Roundup

 Performance data

August’s biggest movers in price terms are shown in the chart below.

The month of August has traditionally been a quiet period for news and announcements in the property sector, and this year is no different. Central London landlord Shaftesbury, which owns Carnaby Street as well as huge swathes of Soho, topped the chart of the biggest movers in the month of August. The group’s share price has been under pressure for most of the year whilst being locked in a legal battle with Hong Kong billionaire shareholder Samuel Tak Lee.

Also ranking highly was central London office developer Derwent London following the publication of solid interim half-year results. Two self-storage companies, Big Yellow Group and Safestore Holdings, also feature in the top five as the sector continues to go from strength to strength. Other notable names in the top 10 are Triple Point Social Housing REIT, which bounced back to some degree (although was still 20.4% down year-on-year) following a consistent downward trajectory due to regulatory issues in the social housing sector. Surprisingly, given the continued travails of the retail sector, shopping centre landlord Hammerson also made the top 10 (although it was still 51.8% down year-on-year).

Fellow shopping centre owner Intu Properties didn’t fare as well, however. Its share price dropped 14.8% in the month of August, bringing its year-to-date decline to 64.1%. Both Intu and Hammerson announced half-year results at the end of July, and the market has clearly shown which turnaround plan they have more faith in.

Intu was only beaten to the wooden spoon by Macau Property Opportunities, the developer investing in Macau – the sole city in China in which gambling has been legalised. AEW UK Long Lease REIT also suffered a double digit fall after announcing it had rejected several takeover approaches. The UK’s biggest estate agency group, Countrywide, saw its share price slide 9.1% in August despite the publication of encouraging half-year results at the back end of July. Industrial and logistics real estate investment trust Tritax Big Box REIT reported a fall in its net asset value (NAV) following the acquisition of developer db symmetry earlier this year. Private rented housing specialists Sigma Capital Group and PRS REIT were perhaps both victims of an uncertain housing market.

 Valuation moves

wdt_ID Company Sector NAV move (%) Period Comment
1 Hansteen Holdings Industrial & logistics 1.70 Half year to 30 Jun 19 Property valuation growth of 1.3%. New leases and renewals 4.7% ahead of Dec 18 ERV
2 Empiric Student Living Student accommodation 2.20 Half year to 30 Jun 19 Property valuation growth of 3.1%. Revenue growth of 14.1% versus H1 2018
3 Green REIT Ireland offices 4.60 Full year to 30 Jun 19 Property portfolio value up 8%
4 Irish Residential Properties REIT Ireland residential 3.50 Half year to 30 Jun 19 Net rental income up 17.6% driven by new acquisitions and rental growth
5 Tritax Big Box REIT Industrial & logistics -1.80 Half year to 30 Jun 19 Fall due to cost of db symmetry acquisition. Excluding this cost NAV growth of 0.7%
6 Derwent London London offices 2.00 Half year to 30 Jun 19 Portfolio valued at £5.4bn, underlying increase of 1.9% in H1 2019. Uplift on developments 13.6%

 Corporate activity in August

There were no new issues in August but plenty of corporate activity.

Palace Capital joined the UK REIT regime on 1 August. The company, which has a £280m property portfolio located across the UK and diversified by sector, said it expected to pay the first dividend as a REIT in December 2019.

AEW UK Long Lease REIT rejected several takeover approaches stating none reflected the true value of the group. The company will now seek longer term solutions to expand, including the introduction of new capital.

Green REIT reached agreement on the terms of a cash offer to sell the business to Henderson Park. Its board unanimously recommended the deal, which will see Henderson Park subsidiary HPREF Dublin Office Bidco acquire the company for around €1.34bn. Green REIT shareholders will receive €1.9135 for each share.

RDI REIT completed the second and final stage of its £75m London serviced office portfolio refinancing. The facility, provided by Aberdeen Standard Investments for a seven-year term, refinanced two existing facilities that were due to mature in December 2019 and August 2022. The weighted average fixed rate for the new facility improved from 3.13% to 2.6%.

Self-storage provider Safestore formed a new joint venture with Carlyle European Real Estate to buy rival M3 Self Storage, which has six self-storage locations in Amsterdam and Haarlem in the Netherlands. The cost to Safestore for the 20% stake was €6m.

In August, The Local Shopping REIT progressed with its winding down, passing two special resolutions in connection with a tender offer. The company’s shareholders can expect to receive the proceeds from the sale of the shares they have tendered, at 31.33p per share, by 30 September 2019.

 Managers’ views

A collation of recent insights on real estate sectors taken from the comments made by chairmen and investment managers of real estate companies – have a read and make your own minds up. Please remember that nothing in this note is designed to encourage you to buy or sell any of the companies mentioned.

 Student accommodation

Empiric Student Property

The UK higher education sector continues to both grow and polarise. There is strong demand for education at top tier universities, but the bottom tier is struggling to attract more students. This means selectivity of location is key when student accommodation providers are considering their growth plans.

There were two notable developments in government policy during the period. In March 2019, the Departments for Education and International Trade published a plan to increase the number of international students studying in the UK by more than 30%. The UK currently hosts around 460,000 international higher education students and the education sector generates approximately £20bn per year through education exports and transactional activity. The government strategy sets out an ambition to grow the total number of international students to 600,000 and generate £35bn by 2030 – a rise of 75%.

In May 2019, the Report of the Augur Review of higher education suggested a reduction in tuition fees from the current £9,250 a year to £7,500, balanced by extending repayment periods from 30 to 40 years. It also called for the return of maintenance grants for poorer students. The proposals, if adopted, should help to bolster the number of applicants and the reduction in revenue for universities could incentivise them to further increase their student numbers. However, until it becomes clear if the government will adopt the proposals, it is difficult to understand the full impact.

 Industrial & logistics

Tritax Big Box REIT

Whilst the political and economic uncertainty created by Brexit has resulted in some challenges throughout H1 2019, occupier demand remains robust. Market sentiment is that 2019 will likely see a lower volume of space taken up compared with the record-breaking take-up level of 2018 but that a healthy level of demand will be crystallised as transactions when occupier strategies are implemented as the uncertainty is resolved.

Development, particularly of larger Big Boxes, remains focused on purpose-built space; although the supply of speculatively built space has increased, it remains modest in the context of recent take-up volumes and the majority of space being brought forward is smaller scale. Market expectations are that the number of buildings and the volume of floorspace that will be brought to market speculatively – especially in the very large Big Box size bands – will be more restrained beyond this year as developers focus on void periods and absorption rates of existing speculative space before making further significant commitments.

In addition, the planning system is expected to control the supply of sites capable of accommodating larger logistics facilities. Prime headline rental growth is expected to continue over the next several years, which remains attractive to property investors who are also awaiting resolution of the ongoing uncertainty to deploy capital. Prime investment yields for logistics assets are likely to hold up or even tighten as investor demand for prime assets remains keen.

Hansteen Holdings

Urban multi-let industrial property is in strong demand from both occupiers and investors. The growth in e-commerce has boosted occupational demand with last mile delivery and goods returns accounting for some of this additional demand. However smaller multi-let units benefit differently to the big box logistic units but all of them generate increased demand for industrial warehousing over other forms of real estate.

The traditional occupiers in our sector continue to trade as strong as ever and some of them have grown faster as a result of incorporating the internet in their business models. However, some businesses which would have occupied other types of property can now beneficially operate from our type of units. Something common to many of our occupiers is that businesses which used to only trade ‘business to business’ are now able to deal directly with the end consumer enabling them to both grow and improve their margins. The spread of uses in our type of properties are broader than they have ever been encompassing manufacturing, storage and delivery, retail, office, leisure and those tenants that do not fall within any particular use class, ranging from churches to micro- breweries.

 Central London offices

Derwent London

The central London office market remains stable with low rental and capital growth, while levels of letting and investment activity are below the high levels of the past few years. However, there continues to be a sufficient number of transactions which support current rents and yields. During the first six months of 2019, CBRE estimated that the vacancy rate fell to 4.2% from 4.5%. Take-up at 5.8m sq ft was 9% below the same period last year, but new supply was also 9% lower at 1.8m sq ft. The continuing high level of pre-lettings means that the amount of new space available to let remains relatively low.

Looking forward, the levels of available supply have reduced slightly with 13.1m sq ft under construction for delivery in the next three and half years, of which 61% is pre-let. As a result, there is 5.2m sq ft of new supply that will be available over the next few years, which is below current levels of active demand estimated at 9.7m sq ft by JLL. Investment activity has fallen with £4.2bn of transactions in the first half, 32% below the six-monthly average. In part this reflects less stock available on the market, but this trend could also be seen as a Brexit hiatus with London offices still screening attractively compared to global peers and with c.£32bn of equity selectively looking for opportunities.

 New research

We have published an annual overview note on Civitas Social Housing. Read it by clicking on the link or by visiting

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