While equity and bond markets around the world have struggled to stay in positive territory this year, the UK Real Estate Investment Trust (REIT) sector has experienced a notable resurgence.

The sector is up some 7.8% year-to-date*, outpacing US and global equities, as well as sterling corporate bonds and Gilts. the more mainstream asset classes and demonstrating its value as part of a diversified portfolio. Indeed, VT Gravis UK Listed Property (PAIF) Fund is best performing fund YTD in the IA Other Property sector, returning 12.3% and generating a positive return each calendar month despite the market turmoil*.

This rebound year-to-date follows a challenging period for the UK real estate sector, marked by rising interest rates and economic uncertainty. However, several factors suggest that UK REITs may be poised for further re-rating, not least that only certain stocks have so far re-rated. The rest of the sector has yet to move.

Despite the recent uptick in share prices, and the fact that property valuations are improving, UK REITs continue to trade at significant discounts to their Net Asset Value (NAV). Currently, the average discount stands at 26.9%, compared to the 10-year average of 17.5%**. Historically, such wide discounts have often preceded periods of strong performance. Anyone investing around points of extreme NAV discounts has been rewarded.

As the chart below shows, purchasing at a 30% discount to the end of month NAV has delivered a positive one-year return 95% of the time, with the two-year average return exceeding 50% three fifths of the time.

Cheap valuations across the sector have not gone unnoticed by private equity and M&A activity has increased in recent months. While takeover interest can be positive, at Gravis we believe that any offer must adequately reflect a company’s long-term value.

The key consideration is not simply the premium to the last traded price, but whether the bid reflects the full potential of the underlying assets. Where it falls short, we engage directly with the company’s Chair to advocate for a valuation that represents it’s true worth.

Despite a narrower market due to the M&A activity, several promising opportunities remain. The VT Gravis UK Listed Property Fund continues to monitor a select group of REITs that exhibit strong fundamentals and potential for growth. These include companies with robust development pipelines, exposure to high-demand sectors like build-to-rent and student accommodation, and a commitment to sustainable practices.

After the recent volatility, investors have begun to hunt for certainty over earnings. UK REITs are not disappointing. 2025 has begun with number of companies releasing strong earnings results. For example, Empiric, an investor in and manager of student accommodation, that is held by the VT Gravis UK Listed Property Fund, announced an increase in EPRA EPS of 5% year-on-year, along with an increase in like-for-like rental growth of 9.3%.

PRS REIT, a provider of new-build rental homes for families, and another holding in the Fund, announced positive FY24 results, including EPRA EPS that was up 17% year-on-year, along with an increase in like-for-like rental growth of 10.8% year-on-year.

The Bank of England's base rate cut in May continued to alleviate some of the pressure on REITs, reducing refinancing costs and improving the financial backdrop for property valuations.

Markets are currently pricing in around three more cuts by the year end, while banking giant Morgan Stanley has suggested rates could drop as low as 3.25%. The environment is becoming increasingly more favourable.

There is already a positive yield gap between UK REITs and gilts, as you can see in the graph below. What’s more, REITs offer inflation protection.

While UK REITs have already made significant strides in 2025, continued M&A activity, coupled with strong earnings performance, attractive valuations and falling interest rates highlight the positive prospects for the UK REIT sector, which could be on the cusp of a further rerating.

What’s more, the next generation UK REITs we focus on at Gravis have additional long-term tailwinds and their potential is exciting. JP Morgan’s latest Guide to the Markets forecasts UK Core Real Estate will deliver a 7.5% AGR over next 10 – 15 years.

We believe we are at a pivotal point for the asset class. Greater investment is needed in specialist listed real estate to respond to social and economic changes and increased demographic shifts. The four socio-economic mega trends that we focus on (ageing population, digitalisation, generation rent and urbanisation) are set to thrive.

*Source: FE Fundinfo, total returns in sterling, 31 December 2024 to 16 May 2025, using the MSCI UK IMI Core Real Estate, S&P 500, FTSE All World, IA Sterling Corporate Bond and IA UK Gilt.

**As at 30 April 2025

Important information 

This article is issued by Gravis Advisory Limited (“GAL” or the “Firm”)), which is authorised and regulated by the Financial Conduct Authority. GAL’s registered office address is 24 Savile Row, London, United Kingdom, W1S 2ES. The company is registered in England and Wales under registration number 09910124. 

VT Gravis UK Listed Property (PAIF) Fund (the “Fund”) is a sub-fund of VT Gravis Real Assets ICVC, which is a non-UCITS retail scheme and an umbrella company for the purposes of the OEIC Regulations. The Fund is a Property Authorised Investment Fund (“PAIF”). Valu-Trac Investment Management Limited is the Authorised Corporate Director of VT Gravis Real Assets ICVC and GAL is the investment manager of the Fund. 

Any decision to invest in the Fund must be based solely on the information contained in the Prospectus, the latest Key Investor Information Document and the latest annual or interim report and financial statements. 

GAL does not offer investment advice and this article should not be considered a recommendation, invitation or inducement to invest in the Fund. Prospective investors are recommended to seek professional advice before making a decision to invest. 

Your capital is at risk and you may not get back the full amount invested. Past performance is not a reliable indicator of future results. Prospective investors should consider the risks connected to an investment in the Fund, which include (but are not limited to) market risk, counterparty risk, inflation and interest rate risks and the risks of investing in real estate and related industries. Please see the Risk Factors section in the Prospectus for further information. 

This article has been prepared by GAL using all reasonable skill, care and diligence. It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction.