A considered view of real estate, investments and beyond

All change in UK REIT Land In the last 25 years, the US has moved from under parity to be 11 times the size of the UK market

The Fund Manager

Returning recently from the EPRA (European Public Real Estate Association) conference in Berlin I was struck by the accelerating pace of change that is now (finally) underway within the UK REIT sector.  A sector, it is fair to say, that has not always been regarded by generalist equity fund managers as being at the forefront of innovation, strategic vision and adaptation. The changes have been brewing for several years but are now both visible, and, most importantly, shaping the strategies of both investors and corporates for the 2020s. So, what are the key forces that are work, and how might they play out over the coming years. I think they can be summarised as follows:

  1. The diminishing relative importance of the UK market
  2. Changing sector preferences
  3. Reduced emphasis on NAV metrics

Let us examine these issues in turn:

A diminishing relative importance of the UK market

When I first started scribbling away as a property equity analyst in the City the UK listed real estate was larger than that of the US. Honestly! Now (as per end August EPRA Global Developed Index weightings) the UK represents 4.87% of the universe compared to 53.69% for the US. In other words during the last 25 years the US has moved from under parity to be 11 times the size of the UK market. Many people forget that although REITs has been in existence in the US since the 1960’s it was only in 1992/3 with the advent of the Modern REIT era that it started to gain meaningful scale. Given the size of the US market overall, however, the trend of the relative sizes is not surprising. However, what is surprising to many people is that the UK is now no longer the largest listed real estate sector in Europe. It is worth remembering that only 5 years ago Germany had virtually no listed real estate companies. From a standing start the German sector is now larger than the long established UK sector (4.97% vs 4.87% of the global market). It is also worth noting that the largest German company (Vonovia) is now approximately the same size as the largest three UK companies put together, and is the 4th largest company in the EPRA Global Index, and the largest French based – Dutch listed company (Unibail Rodamco Westfield) is the 5th largest. This is not due purely to the performance of the direct property market. In London the market has proved remarkably resilient post EU referendum. Similarly it does not lie in structure. The German listed sector, unusually for a Western developed market, is not predominantly a REIT market. So the reason must lie in the relative attractiveness of the risk/return characteristics from the underlying real estate held by these companies, together with the equity valuation methodology. 

Changing Sector Preferences

Perhaps the most widely used graph in the sector of the last 18 months has shown the massive relative out-performance  of industrial property companies such as Prologis in the US and  Segro in the UK, compared to retail property companies such as Simon Property in the US and Intu in the UK . 

The Fund Manager

About Alex Moss

Alex Moss

Alex is responsible for developing the newly created Centre for Real Estate Research at Cass Business School . He also runs Consilia Capital, a research and advisory firm, which specialises in the performance and strategies of real estate, infrastructure and real asset funds, work that combines academic research with practical applications. He has been involved in research and transactions in the global real estate sector for over 30 years. His career has encompassed sell side research (BZW, Macquarie), investment banking (CSFB), private equity (Apax Partners Capital), and fund management (M&G and Investec). He is Chairman of the EPRA Research Committee, a member of the EPRA Advisory Board, and Chairman of the Investment Committee for the Investec Global Real Estate Securities Fund, where he acts as a consultant. Alex is best known for his academic and commercial work in the area of Global REITs, and their use in investment strategies. In 2013, with Professor Andrew Baum they produced two innovative papers for EPRA which received wide acclaim, looking at whether listed real estate was managed as part of the real estate allocation, and the wider use and applications of listed real estate securities in asset management. His work with Kieran Farrelly on combining direct and listed property for Defined Contribution Pension schemes won a Best Paper award at the 2014 ERES conference. A particular area of interest is the use of Smart Beta and automated trading strategies, most notably Trend Following and Momentum, and his work in this area with Professor Andrew Clare and Professor Steve Thomas has been widely cited. In 2017, with Reitsmarket he produced two multifactor Global REIT Smart Beta indices, which are listed on Euronext, and marketed by Goldman Sachs. Most recently he has been concentrating on the use of listed real estate within real asset strategies.

Articles by Alex Moss

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