Let’s get physical

Let’s get physical

Previously, we’ve focused on real estate securities – the breadth of the opportunity set together with the diversification and active management benefits they afford. In our Property Growth & Income portfolio, we combine real estate securities with select physical holdings where again, careful selection and active management is key.

Sector positioning

Within the portfolio there’s a clear emphasis on industrial buildings. Income flows into the portfolio from over 50 underlying tenants operating across a range of industries, including logistics. We have zero exposure to UK high streets or shopping centres. With 30% (and rising) of all consumer purchases taking place online, these are structurally challenged areas of the property market that we are keen to avoid. Out of town retail parks are selectively attractive, however, with DIY specialists attracting footfall and ‘click & collect’ becoming more popular with both customers and retailers. Our office portfolio accounts for only 16% of the physical assets and is focused on the south east with either good parking allocations or exceptional public transport. From our office building in Reading, you’ll soon be able to reach Oxford Street in under one hour without changing trains.

The right locations

As in equities, we look for locations where the conditions for rental growth exist. That means areas where supply is tight, and demand is strong – think industrials and our avoidance of high street retail. Good transport links and local amenities are crucial. There’s a bias towards southern England but we do own some buildings in the Midlands. Hands-on management and strong relationships with our tenants are critical so it’s important we can reach our properties easily.

Lot sizes – small and nimble

We focus on relatively small lot sizes – with an average £6m value across the portfolio. Liquidity is often greater in this market segment as there is a wider pool of potential buyers so it’s quicker and easier to sell our properties. Average lease lengths are typically shorter, which means yields tend to be higher, but they also allow us to access underlying rental growth faster. We spend a lot of time understanding our tenants’ needs and making sure our buildings are fit for purpose. Why? Because we want to see leases renewed upon expiry – especially if we’re able to justify an increase in rent.

ESG matters

The investment world has seen sustainability-related considerations come to the fore in recent years and property is no exception. We recognise the potential impacts of property on the environment, the health and safety of occupiers and the communities in which they are located. We take our responsibility seriously. For example, we undertake robust environmental due diligence before acquiring an asset and proactively seek opportunities to enhance energy efficiency.

27 February 2022
George Gay
George Gay
Fund Manager
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Risk Disclaimer

Past performance is not a guide to future performance.

The value of an investment is dependent on the supply and demand for the shares of the Investment Trust rather than its underlying assets. The value of an investment will not be the same as the value of the Investment Trust’s underlying assets.

Views and opinions have been arrived at by Columbia Threadneedle Investments and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

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