Three commercial property funds that go beyond offices and shops
When it comes to commercial property, these three real-estate investment trusts in promising niches look most appealing, says David Stevenson.


The property market has made a pedestrian recovery from the pandemic. The MSCI World index has rebounded by 30% over the past year, whereas one of the key property industry measures, the IPD UK index, is up by a mere 4%.
The recovery in the listed real-estate investment trust sector (these trusts are known as Reits) has been more pronounced, but is still a tad underwhelming. Reits are up by 24.8% overall, while the average gain in global equity funds is over 40%, according to data from the funds team at Numis, a stockbroker.
You can see why there might be some lingering caution. I’m still not sure how the pandemic will affect the core sectors of offices and retail over the longer term. Take demand for offices. There will be a structural shift towards more homeworking, but I’d be sceptical about bold claims for a fundamental shift out of the big cities. Similarly, in retail we could see high streets bounce back.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Given the uncertain outlook I am wary of bulls who insist that property funds are cheap. That said, there are opportunities emerging in specialised niches. Here are three funds that have produced strong numbers in recent weeks by concentrating on assets outside the mainstream office and retail market.
Resilient industrial properties
One to consider is Stenprop (LSE: STP). This is a fund undergoing a transition, with a renewed focus on a core UK multi-let industrial (MLI) portfolio. These assets consist of myriad industrial estates, which have proved to be fairly resilient.
Even during Covid-19, demand and rents held up. According to recent numbers from Stenprop, over the last quarter rents actually increased by 1.8% (following a 0.8% rise in the previous three months), with the one-month increase at 5.6%. Vacancy rates have also been falling and the occupancy rate now stands at 93.7% (from 93.1% on 31 December). Crucially, rent collection is not far off normal; it reached 90% during the Covid-19 crisis.
Over the last few years the fund has been selling its legacy portfolio of European assets to focus on the British MLIs.
With the recent sale of a German retail portfolio, Stenprop is now over 75%-invested in MLIs.
That shift is also being reflected in a planned move from the specialist-funds segment of the stock exchange to the main market. The yield is around 4.5% and although the fund trades at a 5% premium to its net asset value (NAV), many of its peers trade at a 10% one.
Helping the homeless
Home Reit (LSE: HOME) has just released very positive numbers showing that the fund’s NAV has risen by 4.8% since its launch last year (when it raised £240m). The portfolio is focused on providing accommodation for the homeless.
The recent results gave us some useful insight into its operating model. As of the end of February, Home Reit had 3,019 beds across 572 properties, valued at £243m in total. These properties are in turn let to 15 registered charities and one housing association through inflation-linked leases.
As for the tenants, their rent is funded by the government and the properties are 100% let. Rents are around £86 a week, or 45% of the total housing benefit received by the tenant.
Across the whole portfolio, the net initial purchase yield (net operating income divided by gross purchase value) is just under 6%, with the fund targeting a dividend of 2.5p for the first financial year to 31 August 2021 and a minimum dividend of 5.5p for the subsequent financial year. The shares trade at a 10% premium to NAV.
We are going to need to spend far more on social housing, and although most of that money will come from the state, private-sector providers such as this fund will also have to help. Returns will never be spectacular and arguably shouldn’t be: privately backed social housing shouldn’t be seen as exploiting the taxpayer or residents. Home Reit’s sensible single-digit returns look spot on.
Rebuilding Berlin
Finally, there is Phoenix Spree Deutschland (LSE: PSDL), an investor in German residential real estate. Its focus is on residential property in Berlin; it splits up old Communist-era residential blocks into flats and then sells them on. That seems straightforward in the hot Berlin market, but last year the local government imposed rent controls and price limits.
A victory for common sense
The fund’s share price took a hit, but in the last few weeks there has been good news. The German courts have struck down the law and so we are back to a free market.
Although rent controls sound very appealing, especially for tenants having to pay more, history shows that they are counterproductive because they reduce supply. If you have a tight market, the answer is to build more.
Talk of rent controls hasn’t completely gone away, however, and I wonder how the affected landlords handle the recovery of lost rents they were owed before this law came in. An aggressive campaign to secure the cash could rekindle the political battle.
At Phoenix the ruling coincided with some solid annual numbers on the €768.3m portfolio, which showed a 5.2% year-on-year increase in value. Covid-19 doesn’t seem to have had a major impact, with lost income only around 4%, while the fund can now get back to its core strategy of splitting up those blocks into condominiums.
Over 70% of PSDL’s portfolio has already been legally split into condominiums, with a further 15% in application. The fund pays a dividend of 7.50 cents, which has increased, or been maintained, every year since the group’s flotation in June 2015.
There’s some debt on the balance sheet, but it is manageable with a 33% debt-to-equity ratio and there is also the chance that following this court ruling the value of its property could be reset higher.
Given a 20% discount to NAV I think that could have a major impact. A portfolio focused on the manufacturing (and increasingly political) powerhouse of Europe has to be a decent long-term bet.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
-
RICS: No spring boost for housing market amid stamp duty deadline and trade tensions
Higher stamp duty costs and nervousness about Trump’s tariffs have caused activity in the property market to slow
By Katie Williams Published
-
Pension panic: what do volatile stock markets mean for you?
Sliding stock markets are no reason to sell out of your pension in a panic, says David Prosser
By David Prosser Published
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?
Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
By Dr Matthew Partridge Published
-
8 of the best properties for sale with libraries
We look at eight of the best properties for sale with libraries – from an 1860s baronial mansion in Fife, Scotland, to a Grade II-listed manor in Gloucestershire with a library with flagstone floors and oak columns
By Natasha Langan Published
-
Best of British bargains: cash in on undervalued companies in the UK stock market
Opinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
By Michael Field Published
-
Building firm Keller presents low debt and ample scope for growth
Geotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
By Dr Mike Tubbs Published
-
PZ Cussons share price down 75% in last decade – why it's one to watch
Opinion Once-strong consumer-goods business PZ Cussons is out of favour with the market. That spells opportunity for investors, says Jamie Ward
By Jamie Ward Published
-
Cash in on the biotech sector with specialist trust BioPharma
Opinion BioPharma has an attractive niche in lending to asset-rich biotechnology companies
By Rupert Hargreaves Published
-
India's stock market decline wipes out $1.3 trillion in market value – can investors stay optimistic?
More than $1 trillion has been wiped off from India's stock market after investors turn to China. Has the emerging-market darling hit rock bottom?
By Alex Rankine Published
-
Pensions revolution: how to profit from the trends shaping the UK pension system
The UK pension system is one of the biggest in the world. Big changes are under way, says Rupert Hargreaves
By Rupert Hargreaves Published