Opportunities can still be found in UK property but there is no value in London, according to Calum Bruce, who has a zero weight to the capital and the south-east in his Ediston Property Investment Company. 
“Whilst our investment policy allows us to invest in central London, in the five years we’ve been in existence we don’t think the yields on offer in London will have been to the benefit to our investors,” the investment manager said.
“In short, it’s just too expensive. We don’t think there’s enough value in London to justify us having a property there.”
Bruce and his team having been looking at London property more in the last four months than they have done in the past four years – owing to the general weakest being seen in the city’s property market.
But the manager added: “I don’t think that values there are at a level yet which would convince me it’s the right time to buy from central London exposure.
“We can invest across any sector, and any region as we’re not benchmarked geographically so we can go wherever we think there’s value or opportunity. That’s why we moved into retail warehousing.”
Ediston Property Investment Company currently has 73 per cent of its portfolio in retail warehousing properties, which is an asset that Bruce said has moved the trust away from the “herd mentality of many investors”.
The Scottish-based real estate investment trust (REIT) company aims to achieve returns by investing in UK commercial properties in three sectors: office, retail and industrial. However, the manager is seeing the most opportunities in out of city retail spaces.
Against the backdrop of the struggling high street, these units are what the evolution of retail might look like with customers more interested in destination shopping experiences rather than the traditional model.
“Retail in my view is evolving, it’s not in terminal decline,” Bruce said.
“Albeit there will be some pockets of shopping centres that will disappear because we just don’t need all of them. We will not buy high-street and we will not buy shopping centres, unless there’s a really compelling reason to do it.”
He added that if he were to buy a high street property, he would have to “be able to knock it down and build something better in its place”.
While the manager is keen on the opportunities offered by retail warehousing, even these assets are not attractive to him in central London as he sees them as being overpriced and a poor use of space in the capital.
Performance of trust vs sector since launch
Source: FE Analytics
“In central London the land values are higher and you can build taller structures, so if you’ve got a single storey retail warehouse unit, it’s not an efficient use of land. It’s not surprising to see the retail warehousing space in London going towards alternative uses, be it residential or affordable housing,” he explained.
“I would say between 60-70 per cent of retail warehousing is over rented, so we don’t touch that kind of stock. Also, we haven’t seen anything in the south-east where we’ve said ‘this is what we want’.”
In other areas, however, Bruce has been willing to create the kind of assets that he wants for the portfolio. The Reit is presently constructing a retail park on the outskirts of his hometown Edinburgh, which he said is an opportunity for the trust to create a stream of income it would have been priced out of buying.
“We’re creating a new income stream which would probably be too expensive for us to buy. Would we be able to go out and buy the completed investment that we’re creating? Probably not it’s too expensive for us to buy, so we get the benefit of that income stream and of the profit,” he said.
“Against a backdrop of retail being an absolute disaster, we’ve got national retailers signing up for our development outside of Edinburgh.”
Bruce believes development should be a better-used tool of property investors as, although income is not created until the project is completed, the cost of buying land and building on it is often cheaper than buying an existing asset.
“As the developers we get to keep the profit, so there’s a lot of benefits,” Bruce added. “It’s a way of investing in property that could be, should be and will be bigger in time.”
In addition, the Edinburgh development has been a way for the Reit to make progress while large parts of the market seem to be stuck in a “wait and see” mode while the UK wrestles with Brexit.
“You have to look beyond Brexit: you can’t just pause. And whether we’re in or out of Europe, whether it’s a hard or a soft Brexit or a hard Brexit, however it unfolds, we’re still going to be living, working, eating, socialising in the UK in property,” Bruce said.
“There’s always an opportunity to take advantage of the market when other people aren’t investing and they’re looking the other way. And when there’s key issues like Brexit, investors will always adopt a different stance on those. So, someone will think it’s a terrible thing whilst others see an opportunity and we’re looking for an opportunity within the market.
“We do like a bit of uncertainty in the business because it creates opportunities.”