2021 was a year once again characterised by the COVID-19 pandemic, but the key theme for the year was recovery. As the year progressed and the vaccine roll out continued apace, economic positivity returned, despite temporary periods of hiatus with the emergence of the Delta variant, and then the Omicron variant towards the end of the year. However, the economy did recover and, by November 2021, UK GDP was above the level seen pre-pandemic. Overall, the UK economy grew by 7.5% over the course of the year.

The UK real estate market also recovered in 2021, with a total return of 16.5% according to the MSCI Quarterly Index (this is different from the Company’s benchmark which is the MSCI UK Balanced Portfolios Quarterly Property Index benchmark), a level of performance not seen since 2014. Transaction volumes reached £73.9 billion over the course of the year, which was 37% ahead of 2019 (prior to the outbreak of the pandemic). Indeed, the fourth quarter of 2021 was the strongest quarter since the same period in 2019. However, this recovery was highly polarised and the spread between the best and worst performing sectors is now at the highest level on record.

The industrial and logistics sector again produced the best performance, achieving total returns of 36.4%, whereas shopping centres achieved a total return of –5.2% and was the worst performing sector over the course of 2021. The office sector continued to underperform, achieving 5.3% total return as structural sector concerns persist. However, best in class office assets continued to generate positive sentiment, particularly with overseas investors. Cross-border capital remained a dominant force in the UK market and accounted for 58% of all investment in the UK market during the year.

Following a poor year in 2020, the FTSE UK REIT index returned to positive territory and recorded a strong total return of 28.9% in 2021. This outperformed the FTSE UK All-Share Index, which recorded a total return of 18.3%, demonstrating that the UK real estate market remains an attractive investment destination. Following a significant sell off in September 2021, UK REITs broadly recovered and finished the year at, or close to, all-time highs. The hierarchy of favoured sectors again remains broadly the same, with the industrial and logistics sector leading the way. However, overall sentiment was positive for all sectors towards the end of the year, with the exception of secondary offices with which there are broad structural concerns. New capital raising has predominantly been tilted towards the industrial sector and, increasingly, the alternatives sector. Environmental, Social & Governance (“ESG”) issues continued to grow in prominence in investor and occupier decision-making and this trend will no doubt continue.

Within the UK real estate market, retail continues to be the sector most negatively affected by the pandemic, as restrictions and changing consumer habits have accelerated the pace of structural change already present prior to the outbreak. However, whilst high street and discretionary based retailers have struggled, retail warehouse assets showed a significant recovery in the latter half of the year. Polarisation within sectors is evident elsewhere, including within the office sector. As occupiers and investors have become more mindful of ESG considerations, their focus has increasingly narrowed on best-in-class assets and, as a result, we have seen demand for secondary accommodation weaken. While we are hopefully now coming to the end of the pandemic, it is likely we will be living with the structural changes it has expedited for many years to come.


The office sector delivered a total return of 5.3% to December 2021 according to the MSCI Quarterly Index, an improvement on the –1.7% recorded in 2020. However, office capital values were relatively stagnant over the course of 2021, with growth of just 1.3%. The most profound fall occurred in the North East office market, with capital values falling by –3.6%. Once again, the performance of the office market was significantly impacted by the COVID-19 pandemic. As restrictions eased over the course of 2021, occupiers had begun returning to workplaces. However, the outbreak of the Omicron variant and the subsequent reintroduction of working from home guidance has further emphasised the pressure which the sector faces.

The rise of hybrid working has led occupiers to revaluate their office accommodation requirements and, whilst vacancy rates did begin to show signs of stabilisation, levels of occupation remain far below pre-pandemic levels. Central London availability by Q3 2021 remained 64% higher than the 10-year average, at 25.2m sq ft versus the 10-year average of 15.4m sq ft, although take up in Central London did recover with 7.4m sq ft let in the year to November 2021. This was 54% above the annual total for 2020, but down 22% on the long-term average. However, polarisation within the sector is becoming ever more apparent as occupier focus narrows on best-in-class assets with strong ESG and wellbeing credentials. Second hand availability in Central London has almost doubled from pre-pandemic levels and in Q3 2021 accounted for nearly 75% of total office supply. As a result, we expect this trend to drive an increasing wedge between rental value growth for the best, and the rest with investor appetite following a similar pattern, and those assets not meeting current occupational demand at risk of significant value erosion. 


After a number of years of poor performance, the retail sector showed some signs of recovery in 2021 despite continued structural headwinds. However, we believe this to be primarily driven by market factors and a product of the market cycle, rather than sector-specific confidence. As a result, performance was highly polarised within the sector.

As was expected, those assets deemed as essential retail use showed strong performance over the year, whereas discretionary retailers and those susceptible to greater online penetration, once again struggled against the backdrop of the pandemic. Whilst retail warehouse assets underwent a strong recovery, particularly in the second half of the year, recording a total return of 21.9% for retail parks, shopping centres continued to drag on the sector and provided a total return of –5.2% in 2021.

High street shops also showed continued poor performance as retailers struggled with ongoing restrictions and a consumer shift to e-commerce. Capital values for retail assets within Central London fell by 5.8%, continuing the trend seen in 2020. The reintroduction of restrictions towards the end of the year also put further pressure on high streets causing another fall in footfall. Supermarkets, however, once again provided a robust performance due to an increase in consumer spending and their relative insulation from online shopping. Supermarkets provided a total return of 15.7%, predominantly driven by yield compression, as investors were attracted by secure, index linked, long income.

Consumer habits have changed over the course of the pandemic and it is clear from footfall data that many now prefer to visit units which provide ‘drive to convenience’ and perceived safety from COVID-19. As a result, investor attention also turned to retail warehouse accommodation, with those assets led by discount or DIY operators of principal interest. In response, yields within this sector have moved in between 150-250bps during 2021. However, schemes with significant exposure to fashion-led retailers have generated less interest as occupational concerns remain. From an occupational perspective, the situation remains fragile as government support is withdrawn and the risk of further retailer defaults remains elevated. With the rate of inflation also expected to continue to rise in 2022, there is likely to be pressure on consumer disposable income in the short/medium term, further impacting on retailer trading performance, particularly for luxury/ discretionary goods and services. As a result, the prospect for rental growth across the sector is considered remote. Moving forward, the sector is likely to remain highly polarised but overall retail sector performance is anticipated to improve when compared to 2021 as shopping centres and high street retail stabilise.


Once again, the industrial and logistics market retained its position as the best performing UK commercial real estate sector. The sector delivered a total return of 36.4%, which compares to an all property total return over the same period of 16.5%.

Sentiment remained extremely positive over the course of the year as investors were attracted by a strong supply-demand imbalance and subsequent rental value growth across the sector. This is most keenly felt in supply constrained locations such as London, which remained the best performing market, with total return for London industrial achieving 43.1% over the year. As investors have sought to buy into the sector, transactional volumes totalled £20.8 billion, the highest level ever recorded and 117% higher than the total transacted in 2020. As a result, transactions involving the sector accounted for 28.3% of total UK real estate investment activity.

From an occupational perspective, demand for accommodation remains extremely high, with take up in 2021 totalling over 55m sq ft, another all-time record. Distribution and online retailers continue to dominate take up and, with the UK wide vacancy rate now below 2.0%, the market fundamentals remain supportive for continued strong rental value growth.

Moving forward, rental value growth is likely to be the predominant driver of returns as further yield compression, which has been the key driver over the course of 2021, is unsustainable and particularly so in the prime sector of the market. Yields moved in between 50-125bps during 2021 across the sector, and prime London estates are now commanding yields of around 3.0%. Sentiment remains very strong for the industrial and logistics market and the sector is well placed structurally to see continued robust growth.


The UK real estate alternative sector, or “Other Property” as it is categorised by MSCI, represents real estate which falls outside the traditional ‘Retail’, ‘Office’ or ‘Industrial’ definitions. Investor interest in the alternatives sector has increased and a total of £22.3 billion was recorded to have transacted over the course of 2021, which was up 34.3% on 2020 and 39.9% above the 10-year average. Total return within this sector was 9.2% which, whilst below the all property total return of 16.5%, was a significant improvement on the total return achieved in 2020 of –5.3%. The reasons for this are largely as a result of ongoing restrictions and a change in consumer habits as a result of the COVID-19 pandemic.

The leisure and hotel sectors, which form a large component of the “other property” sector within the MSCI sample, suffered at the beginning of 2020 due to strict government restrictions, with many operators not reopening until Q2 at the earliest. However, over the remainder of the year the sectors underwent gradual recovery and regional hotels in particular experienced record bookings, as international travel restrictions boosted the demand for domestically driven ‘staycations’. As a result, total returns in the hotel and leisure sectors for 2021 were 7.7% and 7.8% respectively.

Healthcare also finished the year in a strong position and recorded a total return of 9.5%. Investor appetite for the Build to Rent (BTR) residential sector also continued its strong trajectory and a record of £4.1 billion was invested into the sector over the course of 2021, beating the previous record of £3.5 billion achieved in 2020.

The Purpose Built Student Accommodation (PBSA) sector also performed well in 2021, despite a muted start to the year. Large platform deals have placed further downward pressure on yields, with those assets with index linked leases now commanding yields of 3.0% according to CBRE. However, performance is polarised, with those assets serving the UK’s top universities best placed to outperform.

Moving forward, the ‘alternatives’ sector is likely to become more ‘mainstream’ as it grows in prominence in investor thinking due to continued resilient performance.

Important information

Risk factors you should consider prior to investing:

  • The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested.
  • Past performance is not a guide to future returns.
  • The value of property and property-related assets is inherently subjective due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the valuations of Properties will correspond exactly with the actual sale price even where such sales occur shortly after the relevant valuation date.
  • Prospective investors should be aware that, whilst the use of borrowings should enhance the net asset value of the Ordinary Shares where the value of the Company's underlying assets is rising, it will have the opposite effect where the underlying asset value is falling. In addition, in the event that the rental income of the falls for whatever reason, including tenant defaults, the use of borrowings will increase the impact of such fall on the net revenue of the Company and, accordingly, will have an adverse effect on the Company's ability to pay dividends to Shareholders.
  • The performance of the Company would be adversely affected by a downturn in the property market in terms of market value or a weakening of rental yields. In the event of default by a tenant, or during any other void period, the Company will suffer a rental shortfall and incur additional expenses until the property is re-let. These expenses could include legal and surveying costs in re-letting, maintenance costs, insurance costs, rates and marketing costs.
  • Returns from an investment in property depend largely upon the amount of rental income generated from the property and the expenses incurred in the development or redevelopment and management of the property, as well as upon changes in its market value.
  • Any change to the laws and regulations relating to the UK commercial property market may have an adverse effect on the market value of the Property Portfolio and/or the rental income of the Property Portfolio.
  • Where there are lease expiries within the Property Portfolio, there is a risk that a significant proportion of leases may be re-let at rental values lower than those prevailing under the current leases, or that void periods may be experienced on a significant proportion of the Property Portfolio.
  • The Company may undertake development (including redevelopment) of property or invest in property that requires refurbishment prior to renting the property. The risks of development or refurbishment include, but are not limited to, delays in timely completion of the project, cost overruns, poor quality workmanship, and inability to rent or inability to rent at a rental level sufficient to generate profits.
  • The Company may face significant competition from UK or other foreign property companies or funds. Competition in the property market may lead to prices for existing properties or land for development being driven up through competing bids by potential purchasers.
  • Accordingly, the existence of such competition may have a material adverse impact on the Company's ability to acquire properties or development land at satisfactory prices.
  • As the owner of UK commercial property, the Company is subject to environmental regulations that can impose liability for cleaning up contaminated land, watercourses or groundwater on the person causing or knowingly permitting the contamination. If the Company owns or acquires contaminated land, it could also be liable to third parties for harm caused to them or their property as a result of the contamination. If the
  • Company is found to be in violation of environmental regulations, it could face reputational damage, regulatory compliance penalties, reduced letting income and reduced asset valuation, which could have a material adverse effect on the Company's business, financial condition, results of operations, future prospects and/or the price of the Shares.
    Other important information:

    Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

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