Real estate reset: The case for UK property
After screening as expensive for several years, UK real estate valuations now appear to offer fair value on a range of metrics.
The below is an extract from our new whitepaper, Real estate reset: The case for UK property
Since 2016, many asset classes, and UK real estate in particular, have been rocked by a succession of events: Brexit, Covid, spikes in inflation, and a historically aggressive policy rate hiking cycle.
At the midpoint of 2024, we feel the timing is right to look objectively at pricing and valuation to establish a clear view on the relative case for UK real estate.
Why now?
In our view UK real estate pricing – and indeed valuations – have, after two years, reset to levels consistent with where rates, and other macros drivers, have settled. Therefore, an informed view on fair value and how pricing might evolve in the medium term is warranted.
We do not, and should not, have confidence in our ability to forecast inflation, interest rates or geopolitics. Although the probability of a slow reduction in policy and market interest rates between now and the end of 2025 is reasonably high, it is not guaranteed. ‘Low probability, high impact’ geopolitical events may yet impact markets. Such factors can inform investment choices between resilient sectors and binary yield plays.
We also reflect that, internationally, gaps between transaction pricing and valuation differ, and differences vary depending on real estate sectors. Such differences matter for allocation and deployment decisions.
According to higher frequency MSCI monthly data, UK real estate values are approximately -25% lower than they were in June 2022.1 April 2024’s reading showed almost zero movement in aggregate, with industrial and residential values appreciating, retail stable, and offices falling.2
This slowdown does not guarantee the next move in values at the all-property level will be upward, but it does make a discussion of relative value timely.
The above is an extract from our new whitepaper, Real estate reset: The case for UK property
Sources
1. MSCI Monthly Digest, May 2024.
2. MSCI Monthly Digest, April 2024. Industrial and retail values were up 0.1% and 0.05% month on month respectively with office values down -0.5%.
Key risks
The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. Past performance is no guarantee of future results.
Whilst LGIM has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives.
The risks associated with each fund or investment strategy should be read and understood before making any investment decisions. Further information on the risks of investing in this fund is available in the prospectus at. http://www.lgim.com/fundcentre
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Bill Page
Head of Real Estate Markets Research
Bill is LGIM Real Assets' Head of Real Estate Research. He has responsibility for the formation of house views and inputs into fund strategy. He has 20 years’ industry experience. He is a voting member of the Real Estate Investment Committee and actively contributes to the platform’s office and industrial strategy.
Bill joined LGIM Real Assets in October 2012, having spent seven years at JLL where he was EMEA Head of Office Market Research. Prior to JLL Bill worked at Estates Gazette Group. He chaired the British Council for Offices’ Research Committee between 2015 and 2018 and sits on the IPF Research Steering Group.
Bill graduated from Lancaster University with a first class degree in geography. He holds the IMC certificate and IPF Diploma.
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