How do you work your way out of a downturn? That is the question the UK’s real estate investment trusts (Reits) have been scratching their heads over during a tumultuous few months.
Raising money is harder in a depressed equity market (which is one of the reasons Ediston Property Investment Company (EPIC) said last week it was mulling some kind of sale or merger with other Reits); raising rent for tenants struggling with inflationary pressures runs the risk of them cutting their leases; selling your assets to generate cash means crystallising lower prices; and development is an expense that needs to be paid for with debt – which is many times pricier now than it has been for the past 15 years. Throw in the prospect of a further lending pullback as the banking sector comes under pressure following the SVB collapse and the rescue of Credit Suisse, and it becomes difficult to see how Reits will emerge from this slump unscathed.
There are no easy options, but for many Reits pushing on with development is seen as the most plausible. By taking these risks, their hope is that they will emerge from the downturn stronger than before. The schemes they are building out reveal a lot about where the commercial market is headed and what asset classes are perceived to have the best growth potential in the years ahead.