November 2024

November was a dramatic month for pan-European real estate equities. Losses of -4.5% in the first three weeks brought the collective correction since the year highs in mid-September to -13%. The last week of November did see a dramatic bounce which reduced the loss in the month to just -0.5%. However, we had added to the gearing – viewing the correction as overdone – and this resulted in performance slightly below the benchmark. The Trust’s net asset value (NAV) corrected -0.81% and the share price fell -2.6%.

The performance of our sector is puzzling. Swap rates continued to fall in the month with the eurozone five-year swap falling from 2.36% to 2.07%; the UK 4.05% to 3.84%; and Sweden from 2.24% to 2.01%. We would have expected a more positive response from our leveraged asset class. Sweden, with the most short-term leverage (and therefore earliest beneficiaries) saw a surprising -1.8% drop in the month. The only sector to perform strongly was residential. The thesis here is that investors are looking to maintain exposure to the least economically sensitive markets. With the vast majority of the listed residential companies’ portfolios being exposed to sub-market rents through regulation, there is little risk to those revenue streams. Our overweight to this sector is reflected primarily though Phoenix Spree and TAG. The former is entirely focused on prime Berlin with a multi-year liquidation mandate; the latter has a really interesting exposure to Poland and is developing new buy-to-let assets.

With more data points confirming the reduction in take-up and the commensurate slowdown in the pace of rental growth, logistics names continued to underperform. Segro, our largest underweight, fell -0.7%, but so did our largest logistics overweight, Argan. The only relative winner was CTP, the Eastern European developer (-0.8%) which announced more deals with tenants looking to ‘nearshore’ in cheaper countries.

The most economically sensitive names underperformed as GDP and survey data pointed to economic contraction. There is much nervousness around political instability following a poorly received budget in the UK, political musical chairs in France and a general election in Germany early next year. Self storage, one of the most economically sensitive sectors (with the shortest duration leases in commercial property), has had a torrid time. Big Yellow (-11.3%) and Safestore’s (-8.0%) performance reflects the drop in occupancy, particularly among business customers. The Trust remains very underweight this sector (1.1% of NAV versus 3% benchmark weight).

Offices remain unloved and our exposure to central-business-district officers is almost entirely in Paris, through Gecina (-2.6%). This is a well-run business with an impressively strong balance sheet; the opportunity to continue to deliver best-in-class prime assets remains our focus, particularly given the depressed valuation. Meanwhile, London office developers with much lower and more volatile earnings continue to suffer; GPE was down -2.7% and Derwent London -3.5% in the month. We don’t hold these firms, and our only London office exposure is through Workspace and Landsec.

In the physical portfolio, we completed the purchase of a multi-let industrial estate for £16.05m, which reflects a net initial yield of 5.75% and a reversionary yield of 8%. The 120,000 square foot estate in Bicester was bought off-market with average rents of under £8 per square foot. There is significant opportunity to add value through investment in the estate and repositioning of the asset. There are four outstanding lease events which present early interventions, as well as long-term scope to grow rents in an undersupplied market in a key regional growth hub.

	2025/2026	2024/2025	2023/2024	2022/2023	2021/2022
NAV (Inc)	– 0.5	11.6	22.5	– 19.3	– 16.5
Benchmark	– 0.1	9.7	21.4	– 19.8	– 21.5
Share Price	– 2.0	13.8	22.5	– 24.5	– 13.5