UK interest rate cuts looking less imminent is not ideal news for real estate but at the same time, it is not a disaster either, according to analysts at Shore Capital.
“The best businesses have evolved to become far more than just binary plays on interest rates and leverage, developing genuine value-added strategies to drive continued growth through the property cycle,” it says.
These include timing capital recycling and development, asset diversification and M&A.
SEGRO (buy 828p) has been actively recycling capital taking advantage of attractive land costs to future-proof its landbank while simultaneously raising new equity capital to accelerate development and acquisitions.
LondonMetric (buy 193p) and Tritax Big Box (buy 147p) have been active with M&A while London office specialists, Derwent London (buy 1,981p) and GPE (hold 385p), along with Landsec (hold 622p) have been accelerating new development starts in response to improving occupier dynamics and stabilising valuations in central London offices.
British Land (buy 369p), meanwhile, has just announced the 'hugely significant' pre-let at its 2 Finsbury Avenue scheme as part of the Broadgate campus in the City.
This effectively takes the development to 33% pre-let (and 50% pre-let if the option space is taken) and is a strong vote of occupier confidence in the scheme and highly supportive of improving wider occupier dynamics in the City.
“While the eventual normalisation of interest rates will undoubtedly provide a welcome tailwind for the sector, the sector remains highly investable without it and capable of generating attractive returns through alpha-led strategies,” says the broker.