Current trends in property share prices reveal a notable decline since last October, as many companies struggle to find a stable footing. This downturn illustrates investor hesitance due to various factors, including interest rates, a shift towards remote working, the impact of the recent budget, and overall global economic instability following the presidency of Donald Trump.

Hammerson, a prominent real estate investment trust (REIT) with holdings like Brent Cross in North London, the Bullring in Birmingham, and Westquay in Southampton, stands out among potential investments. The company disclosed a significant increase in its full-year loss, reaching £526 million in 2024—it marked a pivotal year, as described by CEO Rita-Rose Gagné.

Transitioning into 2025, Hammerson is reemerging as a restructured entity after incurring a £500 million loss from divesting a 40 percent stake in Value Retail, the owner of Bicester Village. Furthermore, the firm has disposed of half of the Croydon shopping centre redevelopment project to Unibail-Rodamco-Westfield and sold its interest in the Italie Deux shopping centre in Paris. These moves signify a departure from Hammerson’s original mission of transforming British homes into apartments during World War II.

Although the net tangible assets per share fell from 382p to 370p, Hammerson reported a robust conclusion to the year, with positive trends in customer visits, sales, leasing, and capital redeployment carrying into 2025.

Gagné has orchestrated a remarkable transformation within a little over four years. “Our portfolio has been realigned towards premier urban destinations,” she stated, emphasizing that these locations rank among the top 20 retail spots in their respective areas, encompassing the top 1 percent of overall retail spending. Plans for 2025 include a focus on expansion while minimizing asset sales.

In discussions regarding the future of brick-and-mortar retail, Hammerson’s strategy relies on the understanding that over 80 percent of transactions still engage with physical retail spaces, rather than entirely shifting online. The company prioritizes establishing stores in urban hubs to capture both casual foot traffic and destination shoppers. This strategy has resonated with retailers; in 2024, Hammerson finalized leases for a record 262 units, generating £41 million in annual rent—an increase of 56 percent compared to prior figures. Its five UK locations serve over 30 percent of the nation’s population, while sites in Paris and Marseille connect with one-fifth of French consumers, and three properties in Dublin reach 80 percent of the Irish market.

Further changes are anticipated as Gagné directs Hammerson back to its residential roots, concentrating on the growing build-to-rent (BTR) sector. She has observed that numerous shopping centres are adjacent to underutilized land, which could accommodate approximately 6,000 to 7,000 BTR units in the medium to long term. However, it is important to note that managing residential properties requires different expertise compared to retail operations.

Gagné remarked, “The foundational elements of our turnaround are complete, but further developments are forthcoming. This new growth phase is just commencing and will focus on scaling operations.” Nevertheless, uncertainty remains regarding capital investments beyond 2027.

Meanwhile, the stock market has yet to fully endorse Gagné’s strategic pivot towards urban centres. Until this uncertainty dissipates, share performance may continue to fluctuate.

Interest rates are a critical factor for all property firms, and it appears that the anticipated decline in rates will occur more gradually than the sector had forecasted.

Analysts from Stifel estimate that earnings per share will rise from an adjusted 19.6p to 20.7p this year, which could reduce the price-earnings ratio to 13.8p and increase the dividend yield to 6.2 percent.

Previously, we advised against purchasing shares three years ago—a recommendation that proved accurate. A year back, our guidance was to hold; now could be a pivotal moment to adopt a more positive stance.

TR Property Investment Trust

For investors who prefer diversified options in real estate without selecting individual properties, investing in a fund may be advantageous. While many such funds focus on specific sectors like supermarkets or office spaces, TR Property Investment Trust offers broader exposure across various property types, including a significant portion in Europe.

However, TR does not consistently invest in every type of property; fund manager Marcus Phayre-Mudge assesses current market trends to determine investment strategies.

Although he currently holds a negative view on the UK residential sector, TR has invested in Vonovia, Germany’s largest residential property company, due to its regulated market conditions and greater demand than supply. The fund also includes shares in industrial, retail, and office sectors, as well as direct ownership of multi-let industrial sites throughout various UK cities. Flexibility remains a core principle of the fund.

During the six months ending last September, TR reported a total return on net asset value (NAV) of 10.9 percent, while share prices rose 13 percent, both outperforming the benchmark, the FTSE EPRA Nareit Developed Europe Capped Index, which recorded a 9.3 percent return. Earnings per share reached 8.16p, compared to 7.31p during the same timeframe last year, with a dividend yield of 5.3 percent.

Phayre-Mudge noted, “We are observing a promising, albeit uneven, recovery in the listed real estate sector. Prime properties in sought-after locations are experiencing robust tenant demand, whereas others face challenges. This dynamic supports our investment strategy.”

Encouragingly, the trend of private equity firms acquiring property companies suggests that the stock market may be undervaluing them, potentially leading to more acquisition opportunities. Although TR has felt the impact of the broader market slump over the past six months, it remains a well-diversified fund poised for future recovery.

Having managed the fund since 2011, Phayre-Mudge has outperformed the benchmark in 12 of the last 13 financial years. Leading wealth management firms like RBC Brewin Dolphin, Quilter Cheviot, and Hargreaves Lansdown are among its investors.

Advice: Buy—indications suggest we are nearing the bottom of the market cycle.