Building profits
Managers explain why they're bullish about their property portfolios
With more than £14 billion of assets under management, real estate investment trusts (REITs) provide investors with access to a wide variety of property from warehouses and data centres to offices, retail parks and residential property.
The UK Commercial Property sector currently has an average yield of 8.4% and trades on an average discount of 25%. Tritax Big Box REIT from the Property – Logistics sector joined the FTSE 100 this month and trades on a discount of 21%.
“We are now the largest logistics real estate business operating in the UK, reflecting the deliberate evolution of the business over more than a decade.”
To discuss the challenges and opportunities in the property sector, a media webinar was held on 24th March by the Association of Investment Companies (AIC) featuring Laura Elkin, Portfolio Manager of AEW UK REIT, Bjorn Hobart, Investment Director of Tritax Big Box REIT and Richard Shepherd-Cross, Managing Director of Custodian Property Income REIT.
Their comments are collated below, alongside views from Bradley Biggins, Portfolio Manager of Schroder Real Estate Investment Trust.
How is your portfolio faring in the current economic conditions?
Bjorn Hobart, Investment Director of Tritax Big Box REIT, said: “We are now the largest logistics real estate business operating in the UK, reflecting the deliberate evolution of the business over more than a decade.
“Throughout 2025, we delivered strong strategic momentum across our growth drivers, including capturing record rental reversion, expanding our logistics development platform, and advancing our data centre pipeline. Our shareholder returns have been delivered through our efficient cost base and income growth.
“The portfolio remains well positioned to deliver attractive, sustainable returns in 2026 and we remain committed to our target of delivering 50% growth in adjusted earnings by the end of 2030.”
Richard Shepherd-Cross, Managing Director of Custodian Property Income REIT, said: “Our investment strategy is income focused to support earnings per share and dividends. Over the 12 months to December 2025 the estimated rental value of the portfolio has grown by 2.5%. Importantly, valuations are growing on the back of rental growth and asset management, not as a result of yield compression, so this should be sustainable long-term growth.
“We are seeing the strongest performance in industrial and retail warehousing, with annual growth in estimated rental values of 5.8% and 4.1% respectively, and the portfolio as a whole showing 4.2% growth in estimated rental values.”
“We are seeing the strongest performance in industrial and retail warehousing, with annual growth in estimated rental values of 5.8% and 4.1% respectively, and the portfolio as a whole showing 4.2% growth in estimated rental values. We have added £67m of gross assets (£55m net) to the portfolio through corporate acquisitions in all-share transactions, which has been earnings accretive and positive for gearing and future rental growth prospects. Through the year we have made profitable sales which have supported asset management spending, debt reduction, share buybacks and corporate acquisitions.”
Laura Elkin, Portfolio Manager of AEW UK REIT (AEWU), said: “The portfolio has been performing strongly over recent periods and has achieved annualised total returns of 10.4% over the past five years. This has been driven in part by robust capital returns, with the portfolio having seen a run of 11 consecutive quarters of positive valuation movement ending in December 2025.
“Income also plays a key part in AEWU’s strategy and, up until the start of the current financial year, the portfolio has seen three successive years of income growth, with the current year on track to do the same. This has been driven by AEWU’s strategic focus on very active asset management which is delivered by our in-house asset management team. Our focus on this area of AEWU's business has kept our occupancy levels well over 90% and kept the portfolio’s rental growth moving forward. This has been the case across subsectors in AEWU’s portfolio but particularly in our industrial holdings, a sector in which we have maintained a high exposure since IPO.”
Bradley Biggins, Portfolio Manager of Schroder Real Estate Investment Trust (SREI), said: “SREI has delivered a shareholder total return of 14.2% per annum over the past five years, with strong growth in the quarterly dividend. The SREI portfolio has outperformed its MSCI benchmark of peers over one, three and five years, so much so that SREI was awarded ‘highest ten-year risk adjusted relative return’ by MSCI for all UK and European funds for the second consecutive year.”
“Given AEWU's market leading performance and strong share rating versus the rest of the UK diversified peer group, I believe that the company is well placed for growth through M&A.”
Following significant M&A activity in the REIT sector, what is the outlook for your REIT?
Laura Elkin, Portfolio Manager of AEW UK REIT (AEWU), said: “Given AEWU's market leading performance and strong share rating versus the rest of the UK diversified peer group, I believe that the company is well placed for growth through M&A. The board of AEWU support this view and would like to position AEWU as a consolidator to achieve for its shareholders the benefits that accompany greater scale, such as cost savings and increased share liquidity. Another major reason that I would like to grow AEWU is to provide greater access to our investment pipeline which, due to average capital values in commercial property being at almost their lowest point since our IPO, currently offers excellent opportunities. My outlook for the company in the current environment is therefore very positive.”
Richard Shepherd-Cross, Managing Director of Custodian Property Income REIT, said: “Custodian Property Income REIT remains relevant in the fast-changing world of listed real estate, as not all investors want to trade income return for liquidity. Investors with long-term conviction in real estate are investing for the income return and see the benefits of investing in UK real assets in an inflationary and uncertain geopolitical world.
“Investors are attracted to Custodian’s property strategy which offers a higher income return, with property risk mitigated through portfolio diversification, well located, modern real estate predominantly let to good quality tenants – 85% having an Experian credit rating showing lower than average risk. The higher level of income generated through Custodian’s investment strategy offers greater cover for rising debt costs.
“Custodian Property Income REIT has demonstrated that it is a niche consolidator of family property companies, acquiring £67m of assets in three transactions over the last 12 months. We think this strategy has some way to run and will support the continued relevance of Custodian into the future.”
“We believe there is a clear place for a higher yielding, active, income focused real estate strategy for investors and SREI offers shareholders a dividend yield of more than 7% and is committed to a progressive dividend policy.”
Bradley Biggins, Portfolio Manager of Schroder Real Estate Investment Trust (SREI), said: “We believe there is a clear place for a higher yielding, active, income focused real estate strategy for investors and SREI offers shareholders a dividend yield of more than 7% and is committed to a progressive dividend policy. The portfolio has an attractive income profile supporting further earnings and dividend growth, with a net initial yield of 6.0% and reversionary yield of 8.3%. This reflects £9.1 million of additional rent which if achieved even in part could have a material positive impact on the dividend which is currently £17.5 million per annum. The company has a clear strategy to capture this reversion and is supported by the extensive resources of the Schroders Capital real estate platform, including sector specialist asset managers. Earnings are underpinned by a strong balance sheet, with an average interest cost of 3.4% and average maturity of 7.7 years.”
Bjorn Hobart, Investment Director of Tritax Big Box REIT, said: “We have taken important strategic steps over the past year, including the successful integration of the UK Commercial Property REIT logistics assets, together with the portfolio acquisition from Blackstone, which have strengthened both our platform and growth outlook and further diversified our portfolio. We now have a broader range of unit sizes, greater urban penetration, and more assets benefiting from open-market rent reviews, improving pricing power in a rising rental market.
“With supportive market fundamentals including strengthening demand, tightening supply and rents continuing to grow ahead of inflation, we are well placed for 2026. Our focus remains on disciplined capital allocation and recycling into higher-return opportunities to ensure long-term value creation for shareholders.”
For more comments on UK commercial property and the logistics sector, please read our press release.
