Where to find growth in UK real estate

Brexit has had a major impact on many sectors of the UK economy. One sector that has been particularly badly affected is real estate investment trusts (REITs). We look at the reasons why the sector has struggled and highlight some of the UK real estate names that may represent long-term value in the current environment.

Go to the profile of Zach Chadwick
Jun 18, 2019

Brexit means tough times for REITs

The REITs sector has struggled since the European Union referendum result in June 2016. This weakness is perhaps unsurprising given the bulk of the listed names in the sector are focused on London office space and retail—two areas that have been hit particularly hard by Brexit uncertainty.

Demand for London office space has a pretty obvious correlation to how well Brexit goes, as the headlines below show. Retail, meanwhile, is an extremely challenged sector for a plethora of reasons but depressed levels of consumer confidence in the UK since the vote certainly haven’t helped.

“Growth hits seven-year low as London house prices plunge amid Brexit uncertainty”i

“Banks to flee London even if Brexit is cancelled”ii

“Demand for London office and retail space continues to fall” iii

The result of this negative sentiment can be seen in the performance of the REITS sector over the last three years. As the chart shows, if you had invested in the FTSE 350 REITs index the day after the referendum, returns relative to the FTSE All Share Index would have been pretty dire.

With Brexit uncertainty far from being resolved, the sector may continue to come under pressure. Nevertheless, the weakness in share prices is throwing up several attractive long-term opportunities for investors.  

Identifying REIT gems

We think that, despite the doom and gloom that surrounds UK REITs, there are some gems that have proved to be remarkably resilient to Brexit-related concerns. These firms are instead benefiting from the key structural changes to the ways in which people are living their lives. 


A major trend that has emerged in recent years is the growing demand for storage. A key driver for this trend is that more people are sacrificing space to live in prime locations. Take for example, Safestore is an owner and operator of self-storage facilities that is well placed to benefit. The bulk of its storage sites are in the UK but some are in France too, while its diverse customer base is made up of business and retail clients. Although Safestore’s business model is pretty simple (literally providing empty space for people to put stuff in) it has managed to create barriers to entry for competitors through its prime locations, enhanced security offering and strong online presence. As specialist facilities, like those offered by Safestore, become more common—and as the company continues to expand the number of its storage sites—we see the potential for more growth to be unboxed.

Online retailing

A real estate trend that cannot be ignored is the migration to online retailing. High street retailers are suffering a slow demise at the hands of the burgeoning online retail sector, led by Amazon. My 13 year old brother would be able to tell you that. But if you are a UK investor looking to get exposure to the online trend, “buy Amazon” is not what you want to hear. Luckily there is a more nuanced way to play this trend. For instance, Segro operates warehouses and offices that are tailored towards logistics, delivery and e-commerce. Some of its top tenants include Deutsche Post DHL, FedEX and Amazon. Segro’s developer and operator model gives it an advantage over peers as the vertical integration is a real plus for prospective clients. Hopefully, the stock will continue to deliver.


More people are going to university than ever and, in particular, more foreign students are coming to the UK as the country is still regarded as a centre of excellence for education. With domestic students also now paying for their education, higher quality accommodation as well as a higher standard of education is being demanded. Gone are the days of grotty student digs. “University accommodation wasn’t like this in my day”, commented my Granny on seeing my brother’s flat in Bath. Companies like Unite Students develop and operate purpose built student accommodation in the UK. we think this company’s focus on “red brick” universities puts the company in a higher quality bracket than its listed peers. The company’s development pipeline also looks strong and the high demand for its rooms is clear from its high occupancy rates.

Focus on quality, location and exposure to underlying trends

The chart shows the performance of Safestore, Segro and Unite compared to the FTSE 350 REIT Index since the European Union referendum in June 2016. All three stocks have produced strong positive returns compared to the negative performance of the overall sector.

The common themes that tie all three of these REIT gems together are their exposure to strong underlying trends and the prime (in location and quality) nature of their portfolios. We believe REIT names with similar characteristics could offer attractive value to investors despite the ongoing concerns affecting the wider and more traditional real estate names.

Zach Chadwick is an analyst within the J.P. Morgan Asset Management UK equity team. Read more about our UK Capabilities >


Find out more about our UK capabilities

[i] City AM, UK house prices: Growth hits seven-year low as London house prices plunge amid Brexit uncertainty, April 2019

[ii] Financial News, Banks to flee London even if Brexit is cancelled, January 2019      

[iii] The London Economic, Demand for London office and retail space continues to fall and “Brexit has been a factor”, April 2019

For Professional Clients/ Qualified Investors only – not for Retail use or distribution. This is a marketing communication and as such the views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a82602755


Go to the profile of Zach Chadwick

Zach Chadwick

Analyst, UK Equity Group, J.P. Morgan Asset Management

Zach Chadwick is an analyst in the J.P. Morgan Asset Management UK Equity Group.

No comments yet.