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Non-EU investment in London commercial property rose 75 per cent in 2018

Purchases of London commercial property by non-EU investors soared last year, rising 75 per cent on 2017.

But investment from within the EU dropped sharply, according to figures from real estate research company Datscha.

Non-EU investors racked up £8bn in purchases in 2018. That was almost 10 times the amount spent by their European counterparts, who spent £885m, representing a 68 per cent fall on 2017.

Asian and US investors were the biggest spenders. South Korean investors led the way, forking out a total of £2.4bn.

Investors from China and Hong Kong made over £2.3bn in purchases, a fall of more than two-fifths on the previous year. Their reduced spend is likely due to Chinese government restrictions on overseas investment.

Wework and Colony North Star’s share in the £580m purchase of Devonshire Square helped North American investment double to more than £1.26 billion.

Other sources of investment included buyers from South Africa, Israel and Saudi Arabia. Office space accounted for 95 per cent of overseas commercial investment.

The market for commercial property in the City was “influenced by the UK’s political uncertainty and weakening of sterling”, said Lesley Males, Head of Research at Datscha.

“This has still brought positive interest in the City of London from a number of overseas buyers wanting a stakehold in what we believe is an ever-appealing investment zone,” she added.

By Michael O’Dwyer

Source: City AM

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Wealthy overseas investors snap up Scottish property

Scottish commercial property attracted more investment last year from wealthy overseas investors than France, Japan and South Korea, according to new research.

Releasing its latest Wealth Report, property consultancy Knight Frank said its analysis had found that total investment from “internationally-based ultra-high-net-worth individuals” in Scottish commercial property totalled some $376.3 million (£283.6m) in 2018.

The figure for France was about $360m, Japan came in at $110m, while South Korea was just $10m. Scotland was placed eighth globally for cross-border private capital investment in commercial property, such as offices, shops and industrial sites, behind Canada at $770m.

The UK as a whole, including Scotland, topped the overall rankings at just over $8 billion, followed by the US at $7.4bn. Knight Frank said that total private investment in Scottish commercial property, which includes UK buyers, was £760.4m last year, a 26.3 per cent increase on 2017.

Private investors represented about 30 per cent of the more than £2.5bn that was invested in commercial property in Scotland during a “resilient” 2018, the firm noted.

Recent high-profile deals involving private investors have included Jenners’ historic department store on Edinburgh’s Princes Street, which was bought by a Danish investor for £53m, while the property company of Inditex fashion group founder, Amancio Ortega, acquired 78-90 Buchanan Street in Glasgow for £31m last year.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Commercial property in Scotland offers solid returns for investors – particularly individuals, who can expect to see the value of their capital eroded by inflation if they keep it in the bank.

“There is a strong appetite for investment outside of London and Scotland is perceived as being relatively good value, even within the UK.

“Both Glasgow and Edinburgh offer compelling supply-demand dynamics and attractive yields. All things being equal, we expect that to drive rental growth over the next couple of years and, therefore, the potential returns to landlords.”

William Mathews, head of capital markets research at Knight Frank, added: “We expect that the appetite from private investors for commercial property will continue to increase as the number of wealthy individuals grows.

“Our latest Wealth Report shows that 21 per cent of ultra-high-net-worth individuals plan to invest in commercial real estate in 2019.”

By Scott Reid

Source: Scotsman

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Sharp rise in property values for UK’s top shared office space providers

The value of property owned by the UK’s biggest shared office providers soared by more than a third last year.

In a sign of the growing flexible workspace market, the value of the industry’s top ten share office providers’ property jumped 35 per cent to £13.6bn last year.

The new data, released by real estate law firm Boodle Hatfield, also underlined the growth in demand for shorter leases among major companies, with the 2017 average length for a new commercial property lease standing at 7.1 years on average, compared to an average of 25 years in 1987.

Rising appetite for such short leases and shared office spaces has driven an increase in traditional property heavyweights experimenting in the sector, with giants such as British Land, Great Portland Estates and Landsec all looking to tap into the fast-growing market.

“Shared workspaces have now gone beyond being a cool place for media and tech startups – they are now a substantial part of the commercial property market in major cities worldwide,” according to Simon Williams, partner at Boodle Hatfield.

Williams added: “The success of WeWork has tempted some of the bigger traditional players in commercial property into the shared workspace market. The expectation is that there is still significant growth in this market in the coming years.”

Source: City AM

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London remains top gateway city in the world for commercial property investors

London maintained its position as the top city for global real estate investment in 2018, according to research published today by JLL. The report claims that investors continue to favour cities they are familiar with and that have well-established investment markets and high levels of transparency. Well-known, large gateway cities with the world’s deepest concentrations of capital, companies and talent continue to dominate the top ranks. Twelve cities–London, New York, Paris, Seoul, Hong Kong, Tokyo, Shanghai, Washington DC, Sydney, Singapore, Toronto and Munich–have appeared in the top 30 ranking every year for the past decade and account for 30 percent of all real estate investment.

The data shows that total volumes in 2018 were $733 billion, up 4 percent from 2017, the best annual performance in a decade. Cross-border purchases accounted for 31 percent of activity in 2018, close to the 10-year average, suggesting investors still have appetite to buy outside their own markets.

Expectations for 2019

JLL projects that investment activity momentum will be maintained into 2019, as real estate continues to look attractive in comparison to other asset classes. Fundamentals in real estate remain compelling, despite historic low yields, as robust corporate occupier fundamentals across most markets are leading to positive returns. As such, investment activity may slow, but only marginally from its current high, as investors look to hold their real estate exposure and become more selective in the search for assets with strong income growth.

  • The institutional real estate universe will continue to expand, driven by factors such as low volatility, diversification benefits, long-term income and an attractive pricing premium to core sectors. Asset classes such as student housing, senior living and multi-family have continued to attract more institutional money in 2018 and this is likely to continue in 2019.
  • Industrial now accounts for 17 percent of all investment, up from 10 percent in 2009. In contrast, the retail sector has seen less activity as investors adjust their investment approach to reflect changing consumer behavior. In gateway cities, the office sector tends to account for a higher proportion of investment volumes—68 percent in 2018, compared to 51 percent in global volumes.
  • The top 30 will continue to be dominated by the gateway cities in 2019. However, at the edges, investors will consider a widening range of cities in their strategies. Reflecting real estate investors’ risk appetite, secondary cities in established transparent markets, such as Osaka and Atlanta, are likely to attract more attention, as opposed to moving into entirely new countries.

Yields are now at historic lows in most markets across the globe. A sharp correction is unlikely, as there is still a significant weight of capital looking to invest in real estate, and corporate occupier market fundamentals across many markets are positive. This creates the potential for continued income growth. However, in 2019, overall investment volumes are expected to fall approximately 5 to 10 percent below the 2018 total, driven by a slightly reduced appetite from investors to sell, as well as continued selectivity in acquisitions.

Source: Workplace Insight

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Outlook 2019: Commercial property sector preparing for a supply shortage

After a solid 2018 in the commercial property sector, the north has to prepare itself for a supply shortage in 2019, according to Craig Burrow, Leeds Director at Bruntwood.

Speaking at’s Outlook 2019 seminar, Burrow said: “From a commercial property perspective it’s been a very good year generally. Leeds particularly is having another strong year in terms of the office market take-up. We’ve also had a great year with the completion of the Platform building in the city centre.

“We’ve seen rents rising, occupancy rising, and investment transactions have hit record highs in Northern Powerhouse cities.”

However, Burrow did say that “one of the biggest challenges” for Bruntwood going into 2019 was the “supply shortage” in the north.

As for the challenges facing Liverpool, Philip Rooney, managing partner at the Liverpool office of DLA, said: “What we don’t have here is top quality office space, and we definitely need more of it. If we have that, then Liverpool will become a far better competitor to other cities.

“This is a fantastic place to live and work, it is absolutely the place to be now, so we need to make sure companies are attracted to come here.”

Despite this, Adam Higgins, co-founder of Capital & Centric, said he believed that the success of neighbouring city Manchester would eventually begin to benefit Liverpool from an office take-up point of view.

He said said: “What Manchester has done in the last couple of years really well is attract office occupiers coming up from London, but the city is now getting to the stage where office space is going to become more and more expensive.

“Companies moving into new builds in Manchester will be paying around £36 – £37 a sq ft, whereas Liverpool is down in the mid twenties. Some businesses just won’t want to pay those rates in Manchester which means they will start to look at Liverpool.”

Tom Kelsall, partner at the Manchester office of DLA Piper, commented on the importance of keeping Manchester’s developments connected and act as part of a community almost.

Kelsall said: “The combined authority have an important job over the next several years to pull together different parts of the area’s communities and make sure Manchester continues to grow. What we don’t want is single assets out in the middle of nowhere that don’t feel connected to the rest of the city.”

Speaking of the office occupier market, Vivienne Clements, director at Henry Boot Developments, said: “We have seen a lot of success this year within the employment scheme Markham Vale. This year we have seen major decisions being made to commit to Sheffield.”

Following the success of Henry Boots Developments this past year, Clements also said they have now “gained an insight across the board” in relations to companies that take up space in studio business park developments.

She explained: “The confidence that Sheffield can take forward is that good quality mid-range companies, who can afford to buy their own building, are attracted to the area. Out of the 16 companies that we’ve brought to Markham Vale, five of those have already expanded further onto the site and one of those expanding is doubling its size just in a five year period.

“We can take confidence in that we have a really strong base and we need to nurture that base because when it comes to a recession they are the backbone that we call all resort back to.”

David Wilton, Chief Financial Officer at Sumo Digital, also spoke about the city’s growing technology sector, and the importance of using this momentum to attract other global tech companies to take office space in Sheffield.

He explained: “It it fantastic that Sheffield is becoming a tech centre of excellence. The foresight that drove the movement away from traditional, old fashioned engineering businesses to a more tech end digital city was great.

“We now need to invest more in tech, and that is about training the right people and attracting the right people to this area.”

Source: The Business Desk

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Commercial property market ‘showing plenty of resilience’ in Yorkshire

Despite the wider UK economic uncertainties and of course the unknowns of Brexit, the commercial property market in Yorkshire is holding up well and showing plenty of the resilience the region is famed for.

The industrial market in particular is very active, with increasing numbers of businesses looking to expand outside city areas into the many industrial parks that have sprung up in recent years. In the latest RICS commercial property market surveycovering Q3 of this year, surveyors were positive about Yorkshire with one observing that there are “no signs of pre-Brexit jitters”, adding however that “we need more stock to enable occupiers to fulfil their expansion plans”. The demand for good commercial space is high.

Turning to the focal point of the regional economy, Leeds, the city is home to many major development schemes. A report from Leeds city council published in 2017 highlighted that there had been £3.9bn of development schemes completed in the city over the previous ten years – with a further £7bn in the pipeline. You only need to look at the number of cranes against the skyline to see that this activity is still forging ahead.

The blot on the landscape, however, is retail. The national malaise affecting the High Street applies in Yorkshire as much as anywhere else. Many city centre shopping centres are struggling to attract business. Some areas with a relatively wealthy demographic, such as Harrogate, may be continuing to attract footfall, but other cities in the region are undoubtedly finding the going tougher. Retail property values are struggling to hold up and funds have begun to exit the sector in favour of office and industrial.

The Chancellor’s Budget recently included measures to help the High Street, with £900m in business rates relief for small businesses, a £675m ‘future high streets fund’ for the transformation of high streets and potential changes to planning rules to allow shops to be converted in homes and offices. How far these measures will go, in Yorkshire and nationally, to support the retail sector and stimulate demand for space only time will tell.

One of the great factors supporting the resilience of the Yorkshire market is the attractiveness of the region as a place to live and work. The population of Leeds, for example, is projected to grow from 779,000 in 2016 to 826,000 in 2026 – an increase of 6%. The popularity of the region as a place to live means that it will also remain a good place to do business, underpinning both the residential and commercial markets. This will be further bolstered when HS2 eventually comes on line, increasing and improving connectivity.

The recent decision of Channel 4 to make Leeds its new national headquarters was further proof of the attractiveness of our region and a great shot in the arm for the city. It will have a ripple effect across the local economy.

Lenders remain active in the market, willing to lend against good residential and commercial developments.

With a growing population, improving infrastructure and funding available, the region’s property market looks set to continue to offer attractive opportunities for both developers and occupiers.

Source: The Business Desk

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Brexit and the City – A barometer for London’s financial outlook

London’s skyline is changing fast, pierced by gleaming new skyscrapers which defy predictions of a Brexit-related slowdown in the capital’s two financial districts.

With only six months until Britain is due to leave the European Union, the terms of its separation have yet to be decided, leaving critical questions over the long-term future of London as the bloc’s pre-eminent financial centre.

Some politicians and economists expect the split will damage the City, as the capital’s traditional financial services centre is widely known, while Brexit supporters say it will benefit from being able to set its own rules.

Reuters is publishing its third Brexit tracker, monitoring six indicators to help assess the City’s fortunes, taking a regular check on its pulse through public transport usage, bar and restaurant openings, commercial property prices and jobs.

The latest Reuters assessment shows a slowdown in some areas, while others are thriving despite the uncertainty.

“It is certainly an awful lot better than we expected 12 months ago and dramatically better than we expected 24 months ago,” Mat Oakley, head of European commercial research at real estate agents Savills, said.

Although property prices and hiring rates have slowed, the number of bars and restaurants open in the centuries-old financial district are at a record level and financiers still queue at the security scanners at nearby City Airport.

Britain is due to leave the EU on March 29 next year, but there is so far no full exit agreement and Prime Minister Theresa May’s plans for future trade ties have been rebuffed by both the EU and many lawmakers in her own party.

Many business leaders fear that a political crisis could propel Britain into a chaotic and economically damaging split, spooking financial markets and dislocating trade flows.

The latest Reuters jobs review shows just about one-in-ten of the about 5,800 jobs flagged as being at risk of moving out of London or being created in another EU city by the end of March have actually moved, although many firms have taken steps to change their legal structure to enable a swift change if needed.

Jobs leaving London

As few as 630 finance jobs have so far been shifted or created overseas due to Brexit, a far lower number than first predicted, suggesting London will retain its position as one of the world’s top two financial centres, firms employing the bulk of UK-based workers in international finance told Reuters.

The results from a Reuters survey of 134 firms, following up on two previous surveys, show that although companies have made detailed contingency plans they are delaying moving large staff moves until after the outcome of negotiations with the EU on the future trading relationship.

Hiring numbers

The number of available jobs in London’s financial services industry fell the most in six years in 2018, said recruitment agency Morgan McKinley, which hires staff in finance.

It bases its number on the overall volume of mandates it receives to find jobs and applies a multiplier based on its market share of London’s finance industry.

Commercial property

Reuters obtained property data from Savills and Knight Frank, two of the biggest real estate firms in Britain. Savills calculates the value from all-known property deals within the City of London area.

The price of renting real estate in the City of London district fell 6 percent in the first six months of the year, falling to 75 pounds per square foot, from 78 pounds in the third quarter of 2016, Savills says. The rental prices are 1 percent higher than in June 2016 when Britain voted for Brexit.

“The story seems to be that big corporates are planning through any period of potential uncertainty. They are taking a five or more year view because some of these deals that we count as happening today or happening in the first half of the year the tenants are not moving in until say 2022,” Mat Oakley, head of European commercial research at Savills, said.

“I wouldn’t say prices are booming….but they are certainly holding steady.”

In Canary Wharf, prices are little changed since last year, Knight Frank, whose data comes from landlords, developers and agents, say.

Global foreign exchange

Britain has defied sceptics and extended its lead in the global currency trading business in the two years since it voted to leave the European Union.

Reuters analysis shows forex trading volumes in Britain had grown by 23 percent to a record daily average of $2.7 trillion (2.1 trillion pounds) in April compared to April 2016. That was double the pace of its nearest rival, the United States, which was up 11 percent to $994 billion, mostly out of New York.

Going Underground

Some 400,000 journeys are recorded every day at the three main underground stations that serve the City and Canary Wharf.

Reuters filed Freedom of Information Act requests to Transport for London, to get this data, which shows that the number of people using Bank and Monument stations fell in the first six months of the year.

City Airport

The number of passengers using London City Airport, a popular gateway for finance executives, rose to a record high in the first six months of the year.

Bar and restaurant openings

Reuters filed a Freedom of Information Act request to the City of London Corporation to find the number of new premises which have applied for licenses to sell alcohol and license renewals.

The number of venues, such as bars and restaurants, with licenses to sell alcohol in the City of London in 2017 rose 10 percent, data from the municipal local authority shows.

The number of venues applying for new licenses fell slightly compared with 2016, the data shows, although the City of London Corporation said such fluctuations are normal.

Source: UK Reuters

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Forget buy-to-let! Consider these commercial property investments instead

A growing number of buy-to-let landlords have been moving towards commercial property following recent regulatory and tax changes that have made investing in residential buy-to-lets less attractive. The characteristics of commercial property are, however, different to residential property. For starters, investments in retail and office property generally require greater amounts of capital and specific technical expertise.

Commercial properties are also regarded as higher-risk investments, due to typically higher average vacancy rates, which can make it difficult for ordinary investors to rely on a single property investment for income. Instead, most investors would probably be better off pooling their money with other investors, via a property investment trust or a REIT, as this will allow you to benefit from added scale, diversification and the skill of the fund manager in looking after your investments.

Keeping that in mind, here are three commercial property investments that deserve a closer look.

Diversified portfolio

With total assets of nearly £1.5bn, the F&C Commercial Property Trust (LSE: FCPT) is one of the UK’s largest actively managed closed-ended companies investing directly in commercial property.

F&C aims to provide investors with an attractive level of income from a diversified portfolio of prime commercial property assets. The managers invest principally in three commercial property sectors: office — retail and industrial — focusing on investments that they believe will generate a combination of long-term growth in capital and income for shareholders.

The managers have a strong track record of delivering robust returns to its shareholders, after having generated a net asset value (NAV) total return of 82% over the past five years. There’s great income appeal too, with the company paying monthly dividends that currently annualise at 6p per share, giving prospective investors a yield of 4.2%.

Less retail exposure

Looking ahead, it may be a good idea to find a property company with less retail property exposure. With bricks and mortar retailers continuing to cede ground to online sellers, investors are becoming more sceptical towards retail property valuations.

With that in mind, Picton Property Income (LSE: PCTN) may be a better pick. It has just 23% of assets weighted towards retail and leisure, compared to 43% for the F&C Commercial Property Trust. And in place of the company’s lower exposure to retail, Picton is tilted more heavily towards the more resilient industrial and warehousing sector, which accounts for 41% of total assets.

Unsurprisingly, its portfolio construction has served it well of late. The company’s total return for the 12 months to 30 June 2018 was 14.2%, which was roughly double the return achieved by the F&C trust over the same period.


The REIT space is another good place for investors to look right now, as a number of property giants are trading at big discounts to the value of their underlying assets.

For example, shares in London-focused Derwent London (LSE: DLN) trade at a 21% discount to NAV, for no other reason aside from the weak investor sentiment towards office space in the capital. Analysts reckon the office market in the capital is particularly vulnerable to a ‘no-deal’ Brexit outcome, given the city’s outsized exposure to financial services.

Nonetheless, Derwent London continues to deliver steady earnings growth, with underlying earnings up 14% in the first half of 2018, to 51.8p per share. And on the back of this, the company raised its interim dividend by 10%, to 19.1p per share.

Source: Yahoo Finance UK

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Local authorities splash out £4.1bn on commercial property

Local authorities have spent a huge £4.1bn on commercial property over the past four years and are on track to set a new annual spending record this year, according to exclusive data from Savills. Last year they spent a record high of £1.8bn, a whopping 1,868% up on the £93.8m spent in 2014.

Local authorities

Local authorities

As a result of this spending spree, local authorities have seen their share of total investment in the commercial property market grow from 0.2% to 3.4%. The investment push was sparked by the government’s announcement in December 2015 that local authorities would need to finance their spending entirely from locally raised revenue by 2020. Many councils took advantage of low-interest-rate loans available from the Public Works Loan Board.

With the supply of central government funding due to be cut off, councils need to find alternative sources of income to ultimately pay for the services they need to supply to their residents, says Mark Garmon-Jones, a director in Savills’ UK investment team. Hence the rush to invest in revenue-generating commercial property.

In many cases, councils are buying property in their own town centres to kickstart regeneration projects “that the private sector can’t or won’t do”, says Garmon-Jones, citing the example of retail-led regeneration schemes. “Interestingly, there hasn’t been a shopping centre bought by a local authority outside its jurisdiction,” he says.

Since January 2014, the top five biggest local authority investors in commercial property have been Spelthorne, Runnymede, Warrington, Canterbury and the City of London.

Local authorities

Just a fortnight ago, Spelthorne Borough Council, which had already spent £620m on commercial property since the start of 2017, acquired a £285m office portfolio from Landid and Brockton Capital.

Council spending on commercial property hit £994.5m in the first half of 2018, up from £681m during the same time period last year. Yet Garmon-Jones predicts spending in the second half will cool and end of year totals will be about the same.

He is not unduly worried about the prospect of local authorities becoming significant investors in commercial property. “As long as they are well advised, from houses like ourselves, then fantastic,” he says. “They just need to tread carefully and not get carried away.”

Source: Property Week

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Don’t write off commercial property

The UK housing market is in the doldrums, but commercial property still has a lot to offer.

The residential property market in the UK may have been in the doldrums for the past year, but most of the commercial property market has been in rude health. That was the message from Marcus Phayre-Mudge, manager of TR Property Investment Trust (LSE: TRY), at the company’s recent annual general meeting, following a year in which the trust’s net asset value returned 14%, and its share price 27%. Admittedly, much of this performance came from the 62% of the trust’s assets invested in Europe, but the return from its UK assets has been similar. Since the end of 2015, UK property equities have lagged, with a negative return of 5% compared with more than 50% from Europe, but most of the gap opened up soon after the Brexit vote in mid-2016.

Yet while uncertainty about Brexit “overshadows investment and creates instability, not least in sterling”, notes Phayre-Mudge, “there seems no end to the overseas buyers of trophy buildings”. Other risks hang over the trust too – discord in the EU, rising oil prices (and hence inflationary pressure), and the continued rise in US interest rates (and hence the dollar). However, Phayre-Mudge is “confident in what we own, though careful about what we don’t”.

Physical retail is struggling

Notably absent from the portfolio is exposure to mainstream UK retailing, other than local and community shopping centres. So it holds property investors such as Shaftesbury and NewRiver, but not the likes of Intu or, until recently, Hammerson. “Retailing will get more difficult before it gets better, with rents needing to rebase and valuations heading downwards… There are few transactions, but these are at 10% below asset value.”

While physical retail is struggling, online retailing continues to grow – “logistics sheds are the new shops”. In 15 years, industrial property and retail property have swapped places as the least and most-favoured parts of the market with Segro, formerly Slough Estates, now a sector darling. Student accommodation, self-storage and healthcare have also proved to be growth areas, with secure income streams indexed to inflation.

The office market in central London has been “surprisingly strong”. Phayre-Mudge remains cautious, but notes that companies such as Land Securities, Great Portland and Derwent London have reduced their levels of debt, “so there will be no repeat of the 2006 crunch”. Meanwhile, the market for offices around the M25 has been buoyant, to the benefit of McKay Securities, which specialises in the development and refurbishment of buildings in less fashionable areas, such as Bracknell, Redhill and Egham.

European markets are in good health

In Europe, rising rents and occupancy rates mean that markets are in good health, while rising wages in Germany have been good for the residential investment companies there. This exposure to Europe will protect the trust in the event of what veteran investor Michael Moule described as “a risk ten-times worse than Brexit; the election of a Marxist-inclined Labour government, which may only be a 20% probability but would result in exchange controls, rent controls, lower sterling and inflation”. In that event, Phayre-Mudge would expect to boost the trust’s European exposure and focus its UK investment on properties with index-linked income.

At last year’s AGM, Phayre-Mudge pointed to a great long-term buying opportunity across the property sector. TR remains the best vehicle for such exposure.

Source: Money Week