The real estate sector has seen “good news across the board” despite the turbulent, geopolitical context the market finds itself in, Custodian Property Income Reit investment manager, Richard Shepherd-Cross, has said.
Speaking at a webinar hosted by the Association of Investment Companies, Shepherd-Cross provided insight into the current state of the property market, stating that if “we close our minds to the geopolitical noise”, there was a lot of positive news.
“We have seen rental growth, positive rent reviews settlements, selling properties ahead of book value, all of that supporting a nearly 12 per cent net asset value take home return,” he said.
He also pointed out that new lettings were 10 per cent ahead of estimated rental value.
“All of that supports a dividend that is fully covered by earnings.”
Shepherd-Cross explained this positivity by suggesting that the real estate market has been negatively impacted in recent years.
“In 2025 we were all full of hope. We had clear valuation growth coming through, strong rental growth, good occupier demand and we thought people would come back to the market in 2025,” he detailed.
“However, we had Liberation Day tariffs which, bizarrely, would have been good for UK real estate, but we all got swept up in the noise of Liberation Day.
“The real killer for 2025 was the uncertainty of Rachel Reeves’ Budget that was so late into the year there was very little opportunity to recover post-Budget, even though real estate was relatively unaffected.”
Shepherd-Cross stated the market came into 2026 with a “groundswell of optimism” as people were recognising the “strength” in underlying real estate.
“The market has been knocked year after year but that creates a huge opportunity for people getting into listed real estate because that dividend yield has expanded,” he explained.
To evidence this point, he pointed to Custodian’s share price which, at the time of the webinar, was around 80 pence per share.
“At a dividend of six pence per share that gives a yield of 7.5 per cent.”
Principal actors
Shepherd-Cross identified two principal actors in the market who have noticed the opportunity of listed real estate, namely retail investors and consolidators.
From 2023 onwards, retail investors identified the opportunity in real estate, attracted by the high dividend yields.
Meanwhile, for consolidators, Shepherd-Cross highlighted consolidation deals have been done at about a 10 per cent discount to net asset value, yet through most of the past two years, the market as a whole is trading at a 30 per cent discount.
“Private equity and large funds who understand the opportunity in real estate think that a 10 per cent discount is a deal, yet the sector is trading at a 30 per cent discount,” he explained.
“That tells me that there is still a way to run. We haven’t closed that gap yet. Every time we have benign news, let alone positive news, we see share prices picking up pretty quickly.”
Shepherd-Cross concluded by stating: “Real estate is a long-term investment. Lock in now to high dividend yields and you will outperform over the long term.”
tom.dunstan@ft.com
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