November was a positive month for real estate equities, and the FTSE EPRA/Nareit Developed Europe TR Index (in sterling) rose +1.1%. The trust’s net asset value (NAV) total return was just behind at +1.0%. In fact, the real estate sector was the third strongest among all the global industry classifications, with the Europe-wide STOXX 600 falling -2.5%. The month began strongly with our sector continuing its rally from October; this was driven by dovish commentary from both the Bank of England (no base rate increase at its November meeting) and the European Central Bank. Sector darlings such as logistics, industrial and self-storage performed well alongside the most leveraged group (Swedish stocks), which have been much discussed in previous monthlies. The latter part of the month saw news dominated by Covid-19’s new variant, which led to considerable price retrenchment among retail and hospitality focused companies; this was despite many shopping centre owners reporting footfall close to, or at, pre-pandemic levels.

Pan European real estate equities enjoyed a healthy recovery after the weakness seen in September. The Trust’s net asset value (NAV) rose +4.4%, while the benchmark gained +3.7%. The share price didn’t quite keep up with the NAV and rose +3.6%. Continental European real estate equities performed strongly and collectively rallied +5.5% in euro terms. Meanwhile, UK companies gained +3.6% in sterling terms.

The Trust’s net asset value (NAV) fell -7.5% in September, the first negative monthly performance in this financial year (31st March year-end). The benchmark, pan-European real estate securities (EPRA Developed Europe, Net total returns) returned an even poorer -8.3% in sterling terms. It was the second-worst performing Global Industry Classification Standard sector (only utilities fared worse) on the back of increasing inflation fears and rising bond yields. Over the month, 10-year government yields soared by around 20-30bps across Europe and the UK.

Pan European real estate equities returned a healthy 3.2% (in sterling) in what is traditionally the quietest month of the year, and the Trust’s net asset value rose slightly more at 3.3%. A tug of war continues between an abundant supply of liquidity (the ’there is no alternative’ mindset) and investor worries; this drives a lack of conviction around the macroeconomics. The Jackson Hole symposium provided little new information for market participants, and bond yields have demonstrated little volatility. For many parts of the real estate landscape, the outlook is favourable. Inflation is here and, whether you view it as temporary or persistent, you want to protect your earnings. For this reason, index-linked income or earnings which respond to economic growth are attractive.

The pan-European listed real estate sector (FTSE/EPRA Developed Europe, net, total return, in sterling) returned +5.8% in July, outperforming wider European equities, which returned +4.5% as measured by Stoxx600 (total return, in euros).

Declining bond yields – notably German 10-year bunds, which were down -25 basis points (bps) to 45bps, and UK 10-year gilts, which were down -15bps – drove real estate equities higher, while the hunt for yield intensified (yet again). The average yield on 10-year government bonds across the G10 is now 0.3%. The concerns over rising interest rates at the beginning of the year now feel like a distant memory and the amount of negative-yielding global bonds, at US$16 trillion, is not far from all-time highs.