This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
Few sectors have been as affected by the pandemic as real estate. While many of the effects of the past year will recede into memory as old habits return, there will be long-lasting effects on our use of commercial property which have important investment ramifications. As we discuss below, there will be an adjustment phase as managers adapt to this new environment, and we think the average portfolio will look very different in a few years’ time than it did before the pandemic. Some managers are ahead of the game, while others will have to do more manoeuvring. However, we believe commercial property will continue to offer a good way to generate a decent yield on investment with exposure to economic growth and relatively low NAV volatility. Meanwhile, the generalist trusts sit on extremely wide discounts. With the UK equity market having started to price in a UK recovery, UK commercial property has lagged. Given commercial property is economically sensitive, there could be an opportunity for discount players if they can navigate the structural issues in some sectors that we outline below.
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