A Review and Outlook for the VT Gravis UK Listed Property (PAIF) Fund

European economy

The VT Gravis UK Listed Property (PAIF) Fund marked its fourth anniversary at the end of October 2023. In this Q&A, taken from a recent webinar presentation, Matt Norris, investment adviser to the Fund, and Emma Ballard, senior research analyst, provide a brief review of 2023, discuss the opportunities they are finding today, and give their views on the outlook for the sector in 2024.


A five-minute video with highlights from the discussion can also be viewed here:

Government bond yields are falling back to levels seen at the end of 2022, what do you anticipate regarding NAV valuations this year?

With bond yields coming down, valuation yields have now stabilised. I think values of the prime assets that we invest in, may well increase in 2024.

Do you think valuations in the secondary market of real estate are holding up, if so, in what sectors?

We are confident that we have weathered the real valuation outward yield shift. At this point, we find ourselves in a phase where the valuation yields of direct properties are likely to plateau and may well come in as we see interest rates cut later this year. Anecdotally, we received a trading update from Unite, leading provider of purpose-built student accommodation, and it is noteworthy that the valuations of the underlying assets are holding up well.

If inflation stays at around 3-4%, how do you expect the fund to perform?

The strategy benefits from two things: embedded rental growth and contractual rental growth. If we see 3-4% inflation, our investments will generate increased rent because of the contractual nature, in addition to which they will capture more of this embedded rental growth. I believe it will be good news for rental growth, and I believe as rates come down, that takes away the refinancing headwind.

What percentage of the portfolio do you think is attractive to private equity?

In the realm of digitalisation, private equity has been actively involved, with the most recent example being the acquisition of Industrial REIT by Blackstone. Notably, private equity has shown interest in investing in the digitalisation and generation rent megatrends, particularly within purpose-built student accommodation.


PRS REIT, owners of 5,000 family homes, stands as an ideal target for private equity. However, it is worth noting that private equity has yet to explore opportunities within the ageing population and urbanisation megatrends.


Interestingly, while major private equity houses have encountered challenges in the realm of offices, our approach at Gravis is selective, especially when it comes to office investments. Our preference is strongly inclined towards London, particularly the West End. In contrast, certain private equity houses have exposure to underperforming office spaces.


Taking a closer look at the numbers, it becomes evident that approximately 70% of the portfolio is in areas that private equity is actively exploring.

Is there a predominant sector or megatrend where the properties rated C and below sit in?

Within the generation rent sector, particularly the purpose-built student accommodation, there tends to be a distinct trend towards very modern purpose-built buildings with very strong EPC ratings and environmental credentials, and this his holds true for portfolios like PRS and Grainger. However, it is worth noting that other areas might require more substantial improvements, especially in the run-up to 2030.


For investors seeking reassurance, when assessing the EPC ratings, our portfolio leans significantly towards ‘C’ rather than ‘G’. Therefore, the portfolio is positioned closer to achieving a ‘B’ rating to elevate environmental standings.

What sectors do you think will perform well in 2024?

Definitely generation rent! We anticipate robust performance in this sector. The ongoing trend of demand surpassing supply in purpose-built student accommodation remains strong, as evidenced by Unite’s recent trading statement. This sets the stage for continued rental growth. Notably, Unite reported reservations for the 71%, equalling their record high. They also anticipate a 5% rental growth for the current academic year.

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