Latest trust commentary

Schroder European Real Estate Investment Trust

Chairman's outlook - December 2024

European occupational markets remain resilient, with most of our sub-markets benefitting from supply constraints and modest vacancy levels. We are witnessing a bifurcation in office demand; there is a growing investor and occupier appetite for centrally located offices that meet building sustainability certifications, while poorer quality offices are struggling to maintain occupancy, income levels, and investor demand. More broadly, office occupancy rates across Europe continue to tick up, passing 60% for the first time since the pandemic in October, which is boosting take-up, which increased 6% year-on-year in the first half of 2024.

E-commerce and evolving supply chain management practices are driving robust demand for logistics, particularly in urban locations, where stronger rental growth is anticipated. Retail demand continues to favour open-air retail parks, urban ‘big box’ units, and convenience grocery offerings. Despite a resurgence in physical retail, shopping centres are facing ongoing challenges, as consumers increasingly prefer dominant shopping centres that offer a diverse mix of fashion and leisure options.

Looking ahead, we expect to continue reaping benefits from a high-quality portfolio with strong occupancy rates located in key European cities. As inflation eases and interest rates fall, we expect sentiment to continue to improve and larger economies and cities are poised for enhanced growth. The Board and Investment Manager are acutely aware that the Company continues to trade at a significant discount, alongside the broader challenges facing smaller REITs in attracting new investors in the current market environment. Nevertheless, we firmly believe - alongside our shareholders - that the Company’s strategic emphasis on the right cities and sectors, coupled with targeted asset management initiatives from our local specialist teams, will lead to positive returns in the future.

With this supportive backdrop, the Investment Manager is focused on capitalising on portfolio reversion to enhance earnings. The successful regearing of leases over the next 18 months, particularly with KPN, Hornbach, and Nestlé, is expected to strengthen the income profile and facilitate potentially transformative asset management initiatives. We believe these actions will support a re-rating and place us in a more advantageous position.

Sir Julian Berney Bt

Independent Non-Executive Chair

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Fund Risk Considerations

Schroder European Real Estate Investment Trust plc

Credit risk

A decline in the financial health of an issuer could cause the value of its bonds, loans or other debt instruments to fall or become worthless.

Currency risk

The fund may lose value as a result of movements in foreign exchange rates.

Interest rate risk

The fund may lose value as a direct result of interest rate changes.

Liquidity risk

The fund is investing in illiquid instruments. Illiquidity increases the risks that the fund will be unable to sell its holdings in a timely manner in order to meet his financial obligations at a given point in time. It may also mean that there could be delays in investing committed capital into the asset class.

Market risk

The value of investments can go up and down and an investor may not get back the amount initially invested.

Operational risk

Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.

Performance Risk

Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

Property development risk

The Fund may invest in property development which may be subject to risks including, risks relating to planning and other regulatory approvals, the cost and timely completion of construction, general market and letting risk, and the availability of both construction and permanent financing on favourable terms.

Real estate and property risk

Real estate investments are subject to a variety of risk conditions such as economic conditions, changes in laws (e.g. environmental and zoning) and other influences on the market.

Concentration risk

The company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down, which may adversely impact the performance of the company.

Gearing risk

The company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in that investment could be lost, which would result in losses to the fund.