As high-tech offices attract staff and top investors… Follow our experts’ guide – and YOU too can become a real estate baron

In recent years, the commercial real estate sector has been a no-go zone for investment, ravaged by higher interest rates, inflation and the pandemic’s impact on shopping and work.

The general unrest was highlighted this week by the cancellation of the initial public offering of Special Opportunities, a REIT (real estate investment trust) that aimed to acquire ‘very high quality’ properties at rock bottom prices from distressed sellers and pension funds. trying to ‘reduce the risk’.

But if you have a long horizon and are willing to take risks, you may find this a good time to explore the opportunities.

Office buildings, for example, are seen as an area worth exploring – but only as long as they have top technology and impeccable green features.

The ‘office peacocking’ features are also essential, which make a workplace a lot more attractive than working from home.

These include roof terraces and luxury shower and other ‘end-of-trip’ facilities.

Tenants are increasingly demanding such upgrades. In April, more than £900 million was wiped off the value of the Canary Wharf towers in London’s Docklands, largely because the accommodation is seen by some as outdated. Mark Allan, CEO of Land Securities Reit, which owns the lights of Piccadilly Circus and its gleaming and planet-friendly offices in Victoria, says “macroeconomic signals look more encouraging than they have in a while.

He adds: ‘The value of high-quality assets has largely bottomed out and is set to grow in the near future as rental prices rise.’

Some long-standing Reits are already on the hunt.

These include data center and warehouse giant Segro (formerly known as Slough Estates) and Derwent, whose portfolio includes buildings in Fitzrovia, near London’s West End.

This area north of Oxford Street was described to me by an estate agent as the ‘on fire’ office market.

Fitzrovia’s bars, coffee shops and Victorian streets have the ‘atmosphere’ needed to entice Gen Z workers.

Private equity groups are also grabbing office buildings and other bargains, while British, American and European institutions such as Aviva, Axa, Brookfield, M&G and PGIM, a division of insurance giant Prudential, appear to think the worst is over.

They provide loans to real estate companies, with an emphasis on data centers, logistics – and of course those luxury office buildings. If this sounds like an area you’d like to get into, here’s what you need to know.

PLEASE NOTE BEFORE YOU ENTER

The sentiment may have changed, but the backdrop remains challenging with the possibility of more shocks.

As a result, the average discount between a Reit’s share price and its net asset value has been as much as 50 percent in recent times, figures from the Association of Investment Companies (AIC) show.

While this seems to present a golden opportunity, FundCalibre’s Darius McDermott emphasizes that not all Reits are bargains. He emphasizes the importance of ‘sector focus’.

There is more clamor for logistics sheds than retail units, which should ensure the trust has sufficient cash flow in the form of rentals to fund payouts – 90% of a Reit’s income must be paid out in dividends.

MERGER MANIA

Some Reits have dissolved and others are looking to merge to achieve the scale needed to thrive and survive.

Last month, UK Commercial Property Reit was acquired by Tritax Big Box.

But such is the optimism for the newly expanded £4bn logistics giant – whose tenants include Amazon and Argos – that brokers Jefferies rate Tritax Big Box as a ‘buy’ with a target price of 201p, up from the current 152p.

THE CHOICE OF PROFESSIONALS

Richard Williams of analytics group QuotedData likes Urban Logistics Reit, which trades at a 27 percent discount and specializes in the smaller warehouses that serve the ‘last mile’ of the supply chain between a company and its customers. According to Williams, this is a segment of the warehouse industry that is “vastly under-delivered.”

TR Property Investment Trust has interests in Land Securities, London Metric, Segro and a wide range of other varied Reits across the UK and Europe. The trust is managed by Marcus Phayre-Mudge.

Ben Yearsley of Shore Financial Planning says, “I prefer to leave the choice to Marcus.”

Since TR Property only has an 8 percent discount, you may not get a bargain.

But you’ll enjoy the services of a guide in an area that may be exciting but is still fraught with dangers.