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Real estate sector doing well, but RE stocks underperform

March has not been a good month for real estate stocks, which continued to underperform versus the wider market, despite positive sector performance.

According to Barclays research, the re-opening of shops and shopping centres, rising yields and inflation expectations were the main themes.

“As results season came to an end, real estate stocks continued to underperform versus the wider market in March the re-opening theme continued and rising yields in combination with increased inflation expectations gathered momentum”, said Kanad Mitra, European Real Estate Analyst, Barclays.

Real Estate underperformed the wider indices in March. EPRA Developed Europe underperformed the Stoxx 600 in March and  UK REITs underperformed the FTSE 100 and FTSE 250. Share price moves over the month were less extreme than observed in February, yet intra-day share price volatility remained high. 

Performance differences between subsectors were relatively limited in March, according to Barclays, with subsector performance mainly driven by individual names. UK Retail names were the top performers at +6%, driven by Hammerson, which saw a +27% bounce due to high expectations in view of the re-opening of retail today.

But despite current optimism over the end of lockdown in the UK, “February 2021 completes three years of valuation declines for UK retail, during which more than 30% capital value has been lost”, said Mitra.

Hammerson has been badly hit by the pandemic and last month it reported a doubling of its annual loss at £1.73 billion. But after announcing its strategic review it’s being seen as proactive and quick to adapt to changing trends.

It recently announced the conversion of a Debenhams store in its Highcross shopping centre in Leicester into a 300-unit residential scheme for rent.

UK Retail names were followed by mainland Europe retail names at +4% (driven by URW at +7%). Unite Group’s performance pulled UK residential to +6%.

The worst performing subsectors, on the other hand, were the perceivably defensive European healthcare (-4%) and German commercial (-3%). German residential traded in line with FTSE EPRA Europe.