UK REITs specialising in beds (residential properties) and sheds (industrial and logistics assets) continue to display robust fundamentals, with their assets witnessing a resurgence in valuation, according to recent analysis from Shore Capital Markets.
Researchers noted that this resurgence underscores a notable disparity between stock market values and real-world asset values, highlighting an attractive share price potential in advance of the upcoming reporting season next month.
In the sheds space, Warehouse REIT made headlines this week by selling two of its industrial assets for £9.5 million, representing a substantial 30% premium to their book value as of March 2023.
While not a colossal transaction, the sale illustrated the resurgence in investor interest in industrial and logistics assets following a recent correction in valuations.
In a market where occupier demand consistently outpaces supply, rents are on the rise.
In the beds space, the Private Rented Sector REIT (PRS REIT) recently reported its final results for June 2023, revealing a continued acceleration in rental growth- 7% on a like-for-like basis and 12% on re-lets.
Strong growth in estimated rental values (ERV) offset a modest 30 basis points yield shift during the period.
Similarly, Unite, a provider of purpose-built student accommodation, reported 7% rental growth for the 2023/24 academic year, with guidance indicating 5% growth for 2024/25.
Shore Cap contended that both portfolios displayed resilience in the latest quarterly valuations, with rental growth effectively countering a slight outward yield movement.
Finally, Shore Cap noted that meds (healthcare-focused REITs) are trailing beds and sheds due to delays in new NHS developments.
“This is one of the drawbacks in the process of securing the attractive rental covenants with the NHS as the government is always looking to optimise value for money,” said researchers.
“However, a growing focus on development for private market tenants, with open market rent reviews, should help mitigate this and ultimately speed up development delivery.”