Entrepreneurial real estate investment trusts (REITs) are taking advantage of the UK property sector’s quiet upturn despite all the gloom about the economy.
“Last year saw a positive total return of 6.7% across all sectors, led by 7.8% for industrial and 8.9% for retail,” says Michael Morris of Picton Property Income (LSE: PCTN). “Offices are still struggling, but returns were still positive. Rental growth was also positive across all sectors, owing to the tightness of supply.”
The £405 million REIT has a portfolio of 46 assets valued at £699 million, mostly in the southern half of the UK. Two-thirds are in industrial-warehouse logistics, 21% in offices and 12% in retail and leisure (such as out of town retail parks).
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The portfolio yield is 4.9%, but there is potential for higher rents as current leases expire, which would take the yield to 7.4%, says Morris. What’s more, 17% of the portfolio is vacant as buildings are being refurbished, which will enable “meaningful” increases in rents.
Focus on smaller REITs
“The direct property market has been witnessing a recovery since September 2024, with valuations improving quarter on quarter driven by consistent rental growth across all real-estate sectors in the UK,” says Richard Shepherd-Cross of the £385 million Custodian Property Income (LSE: CREI). “We see real opportunity in the market at the moment.”
Custodian’s £625 million portfolio is invested across an even broader range of regional property: 43% industrial; 22% retail warehouse; 14% offices; 7% high-street retail and 14% other. With 175 properties, these are on average smaller than Picton’s. Rental growth last year was 2.5%, with the strongest growth in industrial logistics and retail parks.
Custodian owns properties that are too small for institutional investors. This is the area in which most of Britain’s family property companies operate – a type of investor who often encounters challenges as time passes. The financial requirements of family members diverge; the portfolio lacks scale; management is time consuming; expensive expertise has to be bought in; and tax complications arise.
So Custodian is targeting deals with families who want to exit. By taking some or all of their payment as a tax-free share-for-share exchange at net asset value (NAV), the family members end up with shares in a liquid, diversified and professionally managed vehicle. The REIT has so far done three deals totalling £66 million and is looking for more. There are “tens of dozens” of family-owned property companies and Custodian is “actively pursuing a number of them”, says Shepherd-Cross.
Attractive yields
Picton has been performing notably well, at least until the recent wider market setback. The shares rose 16% last year and are still up 7% in 2026; Custodian gained 12% in 2025, although it is down 5% this year. Yet neither are expensive: Picton trades at a 23% discount to its end-December NAV, while Custodian is on a discount of 20%. Both offer an attractive yield – 4.8% and 7.6% respectively – which should continue to grow.
Both also have healthy balance sheets. Picton has a loan-to-value ratio of 23%, despite investing £6.5 million last year and spending £25 million on buybacks at an average discount to NAV of 25%. It is paying a weighted average interest rate of 3.7%, with an average of six years to maturity. Custodian has a loan-to-value ratio of 26% and an average cost of debt of 4%, with 70% of this fixed at an average rate of 3.3% and an average term of five years.
Picton may exit the market sooner than it should: the board has recently launched a strategic review and has received a number of proposals. Yet it is clear that both it and Custodian have solid prospect on their own merits, driven by rental growth, investment and acquisitions.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
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