Despite tough market conditions lasting longer than expected, it is still a good time for investors to get into real estate investment, according to Custodian Property Income Reit fund manager Richard Shepherd-Cross.
Custodian Property Income Reit has a portfolio of 150 properties and returned to profit in the last half of 2024.
However, Shepherd-Cross admitted the market was taking longer to recover than expected.
He said: “I am feeling reasonably chipper about the prospects at the moment. The window of opportunity for investors to get in at the bottom of the property market cycle has been much wider than ever I expected it would be.
“I thought that by the back end of last year share prices would have risen to such an extent that, while still a good investment, real value opportunity would have passed — but it hasn’t.”
Earlier this month, the investment trust sold two office buildings in Cheadle for £6.9mn, which were bought in 2021 and 2016.
And Shepherd-Cross said private equity and retail investors have “got the message” that now is a good time to invest in the sector.
He added: “People should be excited about real estate right now.”
When it comes to the popularity of investment trusts as a vehicle, Shepherd-Cross said when judged by their ratings relative to net asset value “you would conclude that investment trusts are unpopular”.
He added: “But I don’t think we should read into that thinking they won’t be around for the long term.
“Investment trusts offer a very particular structure that allows investment in relatively illiquid assets.
“Of course, real estate is the classic illiquid asset and real estate investment trusts are and remain, in my view, the very best structure for people to access real estate investment in any sort of fund structure.”
Shepherd-Cross added it would be unfair to judge the investment trust structure at a low point in market confidence.
He believes a lack of institutional investment in real estate is one of the factors holding it back at the moment, something he believes will return.
When it comes to Custodian, Shepherd-Cross said since it was launched 11 years ago it has been income focused and targets commercial properties across the country with a capital value of under £10mn.
He said: “What we did is we looked at the market to try and find mispricing opportunities.
“We identified, and it has remained the case for the full 11 years, that there are mispricing opportunities for assets with a capital value of less than £10mn.”
He said institutional investors and private equity tend to target more expensive properties while retail investors target ones at a lower price point.
“There is a sort of gap between £3mn and £15mn where there is less demand, yet you can still buy good quality modern property, let to household name tenants with very good Experian credit ratings,” added Shepherd-Cross.
tara.o’connor@ft.com
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