UK property equities

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Real Estate Capital UK commentary

UK REITs were mauled during August’s stock market volatility. Their share prices, which had steadily outperformed equities for the first half of the year, fell in line with the market generally. In terms of total returns, in August, UK REITs returned -9.9% against the FTSE 100’s -6.5%.

Economic confidence has taken a knock and downgraded  UK GDP growth forecasts have hit property shares. In particular, there is increasing nervousness about the City office market.

British Land, Land Securities and Derwent London, which all have big central London/City portfolios and developments, have suffered from investors’ cooling enthusiasm about take-up and rental growth prospects.

Some analysts have cut their valuations for the sector and expect capital growth to stall or go into reverse. But IPD’s All-Property Index remained steady in August with capital growth of 0.1%. Retail and industrial values were static, but offices rose 0.2%. A 0.5% income return made up most of IPD’s 0.6% All-property total return. Offices are slightly ahead of other sectors, at a 0.6% income return, against 0.5% for retail and industrial.

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