16 hours ago
Real estate is on the road to recovery. Here's how to profit
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest.
As with so many other asset classes, the real estate market took fright in 2022. In just two months, the index tracking real estate equity trends fell sharply, down 33pc between August and October of that year.
While it has since staged a recovery, up 45pc from its lows, the sector has been on a volatile journey.
However, in spite of the macro-economic headwinds of recent years, we see an important positive inflexion point for pan-European listed real estate – and know how investors can profit from it.
TR Property Investment Trust offers access to a portfolio of UK and European real estate securities, as well as investments in the bricks-and-mortar properties themselves.
The trust has focused solely on property investing for more than 40 years and aims to pay investors an income while compounding their capital growth.
It is managed by a highly experienced team led by Marcus Phayre-Mudge and, under his stewardship, the trust has consistently outperformed its market benchmark with about 2pc annualised outperformance over the past five years.
Marcus Phayre-Mudge brings a wealth of experience and a disciplined investment approach. His focus on bottom-up analysis and stock selection, combined with a deep understanding of macroeconomic trends, has enabled the trust to navigate volatile markets effectively.
The manager's emphasis on balance sheet strength, dividend sustainability, and management quality helps to ensure that the portfolio remains resilient even during periods of economic uncertainty and, importantly, captures the market rebound.
The portfolio is diversified across geographies and sectors, with significant allocations to logistics, residential, shopping centres and office properties.
As of the end of May 2025, the trust's largest exposures were to the UK, France, Germany and Sweden. Top holdings include Vonovia, a specialist in German residential and one of the largest real estate companies in continental Europe by market capitalisation; TAG Immobilien, a residential company, with a portfolio of about €6.5bn (£5.5bn) split between Germany and Poland; and Picton Property Income, a diversified UK Reit with a weighting towards UK industrial. This reflects a strategic tilt towards high-quality, income-generating assets with strong fundamentals.
The trust's physical property portfolio, though a smaller component at about 5pc of net asset value (Nav), provides additional diversification and income stability.
In our view, what sets this company apart is its active management style and the ability to adapt to changing market conditions.
The trust has demonstrated a strong track record of identifying undervalued opportunities and capitalising on structural trends such as urbanisation, e-commerce and demographic shifts.
Its flexible mandate and the closed-end structure allow it to adjust sector and geographic exposures dynamically, enhancing its ability to generate outperformance. In addition, 'animal spirits' have returned to the market over the past few years, and the trust is well-placed to be a beneficiary of this phase in the property cycle.
Recent portfolio activity includes selective additions to logistics and residential names, reflecting the manager's confidence in these sectors' long-term prospects. The trust also reduced exposure to office assets in weaker locations, aligning the portfolio with evolving tenant preferences and hybrid working trends.
Looking ahead, potential catalysts include a stabilisation in interest rates, improving rental growth and continued consolidation within the pan-European property sector.
The trust has a long-standing commitment to delivering income to shareholders. For the year to the end of March 2025, it declared a total dividend of 15.9p per share, representing a 1.3pc increase from the previous year.
It currently yields 4.7pc and this dividend has grown every year since 1996 (excluding 2010 where it was held unchanged) and boasts an annual dividend growth rate of 8pc over the last decade.
In terms of valuations, the trust is trading at a discount to net asset value, currently about 9pc, which we think presents an attractive entry point for investors.
As market sentiment improves, there is scope for this discount to narrow, providing additional upside. The valuation of the pan-European property equity market has bounced off its post-global financial crisis discount levels but, even though Navs are rising, the ratings are still dislocated.
Listed real estate share prices continue to be driven by interest rates and movements in the yield curve, and in Britain, a pick-up in transaction activity points to some green shoots of recovery, as well as much-needed price discovery.
In this column's view, there is an attractive valuation opportunity in listed real estate. Merger and acquisition activity will probably remain elevated and the market is likely to continue rewarding the winning sub-sectors and quality growth companies, but dispersion is also likely to remain high. At the risk of stating the obvious, the outlook should only improve further if the future path of interest rates is downward.
