Written by James Wakelin, Head of Portfolio Management
Whilst the impact of events over the last few months continue to unravel, it is difficult to assess their long term implications at this stage. At the Bank of England’s latest committee meeting last week they voted unanimously to further ease monetary policy. This was in response to a sharp contraction in GDP in April and inflation falling to 0.5% in May. Whilst unemployment remains low, it is widely expected to increase significantly following the removal of the government’s support programme over the next few months. Interestingly though, the one vote against the extension of the monetary programme was from the Bank’s chief economist who felt the recovery in the economy was likely to occur sooner than previously expected.
In times of uncertainty investors have typically been drawn to income returns. Finding attractive and stable income returns in this environment is challenging. The base rate is currently at 0.1% with rumours of negative interest rates on the cards and corporate earnings and dividends under pressure. With property traditionally favoured for it’s higher income, perhaps this is the place to look. However, the headlines in Property Week last week suggest a very mixed picture:
As with the recent Bank of England minutes, it is the last headline that is perhaps most interesting. Warehouse REIT, one of our peers in the industrial space raising money to expand rather than shore up their balance sheet, a similar exercise to Segro a few weeks ago. The industrial sector has historically been one of the highest yielding sectors of the property market, with consistent income helping make it the best performing asset class over the last 30 years. There is resilience to this income as well, with industrial landlords benefiting from some of the highest rent collection rates over the last few months. Stenprop is particularly well placed in this regard in the multi-let industrial sector, with over 900 customers providing high levels of diversity and reducing specific tenant risk to nominal levels. This, together with the accelerating trend away from the high street towards e-commerce, places those exposed to the sector in a strong position. Whilst we are currently witnessing the shoots of recovery in terms of customer demand, it is clearly too early to tell whether this is pent up demand from months of inactivity or a boost from the ongoing structural change. Either way, strong income and an active occupier market have increased investor appetite from those looking for income and growth in an evolving market place.