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How to solve a problem like liquidity: REITs and the UK property sector

Being aware of these major trends is important when looking for REITs with the most promising potential for returns. Investors should look for key drivers of outperformance such as superior organic rental growth, lower capital expenditure on maintenance and favourable rate spreads. 

These social trends are also useful when examining the risks of the real estate sector. Technological innovation spells not just opportunity for the big warehouses, but also hints at potential disaster for UK retail. 

Last year, 43 multistore retailers ceased trading, affecting 2,600 stores and 46,000 jobs. Slowing footfall in UK high streets, linked in part to the rise and ease of shopping online, marks the retail sector out as high-risk, as does the poor performance of UK retail-focused REITs which lost an average of 3.5% between July 2009 and July 2019, according to Bloomberg data. The GULP fund will have minimal exposure to retail at launch as a result of these troubling figures and sector headwinds.

Investors should remain wary of the risks associated with real estate and should opt for a trusted manager to sift the strong opportunities from the weak. The REIT regime continues to offer exciting entry into a specialist sector for investors, and with the issue of liquidity solved, property investments can prove a successful diversifier for a balanced portfolio. 

Matthew Norris, CFA, Adviser to the VT Gravis UK Listed Property Fund

*10 year returns for FTSE EPRA NAREIT UK (31.07.09 – 31.07.19)

This is a Gravis Paid Post. The news and editorial staff of the Financial Times had no role in its preparation