After a positive third quarter for real estate equities, October served as a wake-up call that even cyclical recoveries have setbacks. Once again, it was adjustments in the market’s expectations for both near-term interest-rate cuts and longer-dated swap rates that drove the pullback. FTSE/EPRA Nareit Developed Europe (net returns, total returns, in sterling terms) fell -6.9% during the month, with the Trust’s net asset value only slightly better at -6.7%.
Although the relative outperformance was very small, we are pleased with the outcome given that the Trust currently has 13.1% gearing. We continue to have high positive conviction given our fundamental analysis of a wide range of underlying real estate markets. Virtually all of our sub-sectors are reflecting demand/supply disequilibrium for the highest quality assets. However, offices remain a concern and we maintain our collective underweight, with the exception of Paris CBD and certain regional Swedish cities (the former through Gecina and Covivio and the latter through Wihlborgs and Platzer).
For the UK, the Budget coming at the end of the month was the key event, particularly for the gilt market. There was a huge amount of pre-announcing, and yields had risen in anticipation. In the end, the sheer quantum of new debt to be issued drove yields even higher into year-end. Over the month, we saw a +44 basis point (bp) rise in both the 5-year swap and the 10-year gilt rate. Continental Europe and the UK matched each other in performance terms on the way down in October. However, when you compare the two regions over the last three months, there is stark outperformance by Continental Europe (+2.0%) versus the UK (-5.3%), as investors grew increasingly nervous about the downbeat messaging from the new government ahead of the Budget.
The weakness in the industrial/logistics group persisted throughout the month, with Segro (-10.2%) being hit by being the sector’s poster child; being the largest and most liquid name in the UK and, hence, the fastest way to express negative conviction towards the UK; and being slow to announce news on the deployment of proceeds from the huge capital raise in February. It is the Trust’s largest negative relative conviction (benchmark weight of 6.3% versus our holding of 2.7%). All of our overweights in this subsector are in Continental Europe, namely Argan (France), Catena (Sweden), Montea (Belgium) and CTP (The Netherlands). Our largest overweight is to the more diversified UK names such as London Metric and Picton (-7.1%) and we have continued to add to the third-largest holding in this group, Schroder Real Estate Income (-2.7%).
The best-performing sub-sector was European shopping centres, which continue to benefit from high earnings yields supported by robust tenant demand and strong balance sheets. We have maintained an overweight to this sector for over a year. Our largest position is Klépierre (6.4% of assets), which fell just -0.3% during the month, reflecting its safe-haven status for many investors.
We acquired a small industrial asset in the month for £3.25m, which reflects a net initial yield of 7.5%, a reversionary yield of 8.8% and a capital value of £114 per square foot. The 30,000 square foot property is in the primary industrial area of Northampton and is of a good flexible specification in a market benefiting from rental growth due to the supply/demand imbalance. The building has also recently had photovoltaic cells installed on the roof, with an agreement to sell the electricity generated to the tenant.
The interim results and dividend (for the six months to end of September) will be published on Monday 2 December.
Discrete rolling annual performance (%)
Performance data is in GBP £ terms. Investors should be aware that past performance should not be considered a guide to future performance. All fund performance data is net of all fees and expenses.
As at date 30.06.2026
| 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 |
