- West End landlord shows a further increase in net asset value
- Lettings and rents rise across property portfolio as vacancies fall
- Shares still trade at more than a 20% discount to net asset value
- Norges transaction shows there is appetite for prime London property
- Lower interest rates and bond yields would be a further boost for the sector
“Many investors still seem wary of the UK real estate investment trust (REIT) sector, thanks to worries about the wider economy, the online onslaught that faces bricks-and-mortar retailers and the threat to office demand posed by working from home, but shares in Shaftesbury Capital are trading at three-year highs after a strong set of first-half results,” says AJ Bell investment director Russ Mould. “The owner of large chunks of Chinatown, Soho, Carnaby Street and Covent Garden can point to another increase in the net asset value of its property portfolio, thanks to higher rents, increased letting activity and lower vacancies.
“Net asset, or book, value continues to creep higher across the £5.2 billion portfolio, which comprises retail, food and drink venues, offices and also residential properties.
Source: Company accounts
“Those valuations had already been underpinned to some degree by March’s swoop by the Norwegian sovereign wealth fund, for a 25% stake in Shaftesbury Capital’s Covent Garden properties. Norges paid £570 million, in line with the £2.7 billion valuation for the assets outlined in the first-half results.
“A number of real estate plays have shown increases in net asset value in the 2025, including Unite, Assura, Safestore, Warehouse REIT and Sirius Real Estate, yet the overall picture still shows that the real estate investment trust (REIT) sector trades an at average discount to NAV of more than 20%. That gap also prevails despite a rash of merger and acquisition activity in the sector, usually at much smaller discounts to book value, including the bid battle for Assura, Unite’s offer for Empiric Student Property and Londonmetric Property’s approach for Urban Logistics REIT.
“There is a wide range in the discounts to NAV on offer, which reflect the asset or geographic mix of the REITs’ operations: specialist areas such as data servers, warehouses and logistics and healthcare tend to attract higher valuations, and pure play office and retail landlords lower ones, with some exceptions along the way.
Source: Company accounts, LSEG Refinitiv data
“The valuation gap had begun to close, as REITs’ share prices welcomed lower interest rates from the Bank of England. Lower borrowing costs can boost economic growth, and thus demand for property, especially in more cyclical area, and also lower interest costs for property developers and landlords. A lower return on cash (and Government bonds) can also make the dividend yields offered by REITs look relatively more attractive from an investment point of view.
Source: LSEG Refinitiv data
“However, the opposite also holds true. The REITs sector recoiled in 2022 and 2023 as the Bank of England jacked up interest rates from their historic lows to something akin to a more normal level and the slower-than-expected rate of decline in 2025 may have muted the share price recovery across the sector.
“The benchmark ten-year Gilt yield must also be watched, since UK Government bonds are an option for investors who seek income from their portfolios, and thus an alternative to property plays that generate rent and use that income to fund dividends.
“The ten-year Gilt yield has not given much ground, despite the Bank of England’s rate cuts, amid worries over inflation and also UK Government borrowing and thus the supply of Gilts.
Source: LSEG Refinitiv data
“The Bank of England may need further signs of a cooling in inflation before it moves decisively to cut interest rates once more, although lower oil and gas prices (and thus energy price caps), a higher pound and softer economic activity thanks to tariffs and trade wars could all provide encouragement in this respect in the second half of 2025 and beyond. The ten-year Gilt yield is not guaranteed to follow base rate lower, given the tangle in which Chancellor Rachel Reeves finds herself with respect to her fiscal rules, but it could potentially be of benefit to the REIT sector in several ways if it did.”
