Three quarters into the worst property downturn since 2008, and the picture for the next nine months is as clear as mud. Last month, lower-than-expected-inflation data gave shares in real estate investment trusts (Reits) and housebuilders a boost. Then, last week, Unite Students (UTG) raised £300mn – the first placing in excess of £50mn for more than 12 months.
The equity market's more bullish logic is simple enough: inflation starting to fall more quickly means a lower peak interest rate than that priced in by the market, which in turn emphasises the possibility that the market has undervalued some Reits. For housebuilders, the logic is similar: lower peak interest rates mean improving mortgage rates, as well as the prospect of buyers returning to the market more quickly, and a better outlook for house prices
Mike Prew, an analyst at Jefferies, said the rally was “a salutary reminder the macro outweighs the micro, and what Reits lack in equity market weighting they make up for in price swings”.