In most markets, rising bond yields would sound the “death knell” for property trusts. On a relative basis, they become less attractive compared to other income assets, so they cheapen to become more attractive, and as many are geared, the cost of borrowing goes up, so distributions to unit holders fall in the medium term.
But in 2018, the listed property trust sector has done pretty well. In fact, it has outperformed the broader market (taking into account dividends and distributions). To last Friday, it had returned year to date 2.23%, compared to the S&P/ASX 200’s return of 1.32%. A small outperformance, but an important outperformance.
What’s driving this outperformance? Firstly, it is not one homogeneous market. There are office, retail, industrial, residential, specialised (eg. data centres) and diversified AREITs (Australian Retail Investment Trusts). The standout performers have been in the commercial office and industrial areas.