Property share prices rose 19% year on year in the second quarter of 2024, but dipped 1.28% on a quarterly basis, according to Property Week’s analysis of 27 property firms listed across the FTSE 100 and FTSE 250, based on London Stock Exchange Group data.

Share prices were particularly favourable for house builders on a year-on-year basis: the value of shares in Vistry soared 79%, followed by Redrow (51%), Taylor Wimpey (38%) and Persimmon (32%).

Oli Creasey, head of property research at Quilter Cheviot, says: “The housebuilders have recovered well from some nasty troughs, but Vistry stands out because it is being rewarded for its strategic pivot towards a partnership model. This means most sales are bulk orders from local authorities and private rented sector investors rather than individuals. In the current environment, this looks like an easier way of doing business.”

Since the end of Q2, housebuilder shares have also reacted positively to Labour’s landslide election victory, up around 2% to 4% on 5 July, buoyed by the new government’s commitment to ease planning restrictions and ramp up housebuilding.

Vistry stands out because it is being rewarded for its strategic pivot towards a partnership model
Oli Creasey, Quilter Cheviot

However, a number of other issues mean there is a limit to how much impact the change of government will have, according to Aynsley Lammin, equity research analyst at Investec. “Over the past couple of years, the housebuilding sector has seen a pinch on the demand side due to higher interest rates and the withdrawal of Help to Buy,” he says.

“Skill shortages also need to be seriously addressed and we need answers on who is going to provide the capital.”

Student declines

While housebuilders enjoyed share price success year on year, elsewhere in the residential sector, the data sample reveals quarterly declines in the share prices of two student accommodation providers: Unite Group and Empiric. Creasey says this is “surprising”.

The declines could indicate a turn in the tide for a sector that is currently favourable to investors. Unite is ranked third from bottom on a quarterly basis and fifth on a yearly basis. Slightly ahead, Empiric is ranked 11th from the bottom on a quarterly basis and ninth on a yearly basis.

“Student housing is one of the few areas where investors have confidence in the UK property market, so these results sit in opposition to the student accommodation market’s strong performance,” says Creasey.

“If you look at the operational numbers at both Empiric and Unite, rents are growing very quickly [with both forecast to exceed around 6% rental growth over the 2024-25 academic year]. So it feels a bit at odds with that.”

Quilter Cheviot’s outlook for student housing is counter to the consensus, with Creasey saying: “We’re a bit nervous on the sector.”

He adds: “One reason for this is its relation to student immigration figures – which is good for student housing but not so much for political headlines. Additionally, the financing and the funding in this sector is a challenge for the government. Unite underperformed Empiric, but not wildly. They’re moving around the same direction. I wouldn’t say this is a Unite-specific problem at this point.”

Office juxtaposition

Across the data set, flexible office group Workspace notched up the greatest share price increase quarter on quarter – up 16%. Big Yellow Group’s share price increased 10%, followed by Savills’ (up 5%), then Derwent London’s and British Land’s (both up 4%).

By contrast, the share price of Great Portland Estates (GPE) fell the most over the quarter – by 13%. Share prices were also down significantly at IWG (-10%), Unite (-9%), PPHE Hotel Group (-8%) and Hammerson (-7%).

“It’s an interesting juxtaposition that GPE is at the very bottom of the list and Workspace is at the very top [both are listed on the FTSE 250],” says Creasey.

GPE is a traditional office landlord of mostly best-in-class HQ-size offices plus some retail. As Creasey says: “GPE is a central London, zone-one developer and operator. It offers single lets or entire floor lets to big businesses.

“In contrast, Workspace, which is often tarred with the London office brush, has SME clients and is on the outskirts of zones one, two and three, with a completely different business model.”

Workspace is focused solely on the flex market, renting out a larger number of much smaller spaces on more flexible contracts. The company will soon welcome Lawrence Hutchings, former chief executive of Capital & Regional, as its new chief executive, replacing Graham Clemett.

The dearth of new REITs means investors have missed out on burgeoning real estate opportunities
Antony Antoniou, Robert Irving Burns

Creasey says: “The new chief executive looks to be a good appointment and I suspect the markets will welcome a fresh face. On top of this news, Workspace’s operational numbers have got back on track to pre-Covid levels.”

Quilter Cheviot has Workspace on a ‘buy’ rating, which means the analysts like the stock and think it is worth purchasing as its value is likely to grow. Workspace’s trading update for the three months to the end of June reveals that like-for-like rent roll grew 1.2% to £111.8m.

Developer gap

Elsewhere, the data shows a large delta between the quarterly performance of property development and investment firms British Land, up 4%, and Landsec, down 6%. Year on year, the gap is even bigger – British Land’s share price grew 36%, compared with just 8% for Landsec.

“British Land and Landsec are very similar firms – almost like twins,” Creasey points out. “They have traded apart, but what they have done this time in this quarter looks significant.

“Of this sample, British Land is the only company with exposure to retail warehouses in any great volume. And that has been the best-performing sector this quarter [Q2], and possibly even for the year to date as well as in terms of valuations and returns. So that has helped it a lot.”

British Land’s circa £9bn portfolio by value comprises 61% campuses and 39% retail and London urban logistics. Of the retail and London urban logistics segment, retail parks account for 62%. British Land is one of the UK’s largest owners and operators in that subsector, with approximately 8% of the retail park market.
Landsec’s ‘major retail destinations’ segment accounts for 18% of the firm’s £10bn portfolio.

Is an LSE revival on the cards?

The jury is out on whether Labour’s election victory could bring about a revival of the London Stock Exchange (LSE).

Investec equity research analyst Aynsley Lammin says “political clarity combined with attractive share value” could bring more inward investment into the UK.

But Dariusz Karpowicz, director at Albion Financial Advice, warns that before the election Labour signalled “they would make property investors’ lives even harder, with more regulations”.

However, he concedes that “the right policies could indeed reduce the risk premium on UK property stocks”.

Meanwhile, new Financial Conduct Authority rules coming into force on 29 July are designed to support a wider range of firms to issue shares on a UK exchange.

Antony Antoniou, chief executive of Robert Irving Burns, says this will provide a “much-needed shot in the arm to our moribund capital markets”. He points out there have been no flotations of REITs in the past three years, an issue compounded in the past month by Special Opportunities REIT’s failure to raise the funds to float.

“This dearth of new REITs means investors have missed out on burgeoning real estate opportunities and the UK risks falling behind our international counterparts,” he says.