abrdn Property Income Trust Ltd on Tuesday said that the office real estate sector still has not recovered to its pre-Covid levels amid high inflation and interest rates, but touted optimism in its outlook.

The real estate trust said NAV per share dipped 7.8% to 78.2 pence as at December 31 from 84.8p a year prior.

NAV total return was negative 3.0% for 2023, underperforming against the FTSE ALL-Share index, which reported a positive total return of 7.9%, and against the FTSE All-Share real estate investment trusts index, which had a positive return of 11.6%.

The company said ‘the uncertainty around inflation, interest rates and debt costs contributed to weakened investor sentiment which resulted in significantly reduced investment activity. According to CBRE [Group Inc], investment volumes in the UK were down 30.2% when compared to 2022 with some sectors being more impacted than others.’

It added that the impact was strong in the office sector which persisted in its underperformance.

‘There was a stark divergence in value movement across regions with, as an example, London’s West End significantly outperforming the South East, albeit both still returning negative total returns. Confidence in the sector has not recovered to pre-Covid levels, from either an investor or occupier perspective and this is depressing demand and negatively impacting values,’ abrdn Property said.

The total dividend per share remained at an unchanged 4.0p per share.

The company’s outlook was more positive. Chair James Clifton-Brown noted cautious optimism for UK real estate returns in 2024.

He added: ‘At a macro level, the downward trajectory of inflation will hopefully continue and lead to some confidence returning to the market alongside interest rate cuts. Increased investor demand should strengthen the market for good quality real estate assets in the right areas of the market with appropriate environmental, social & governance credentials.

‘At a property market level, there is an expectation of continued rental growth in the industrial sector as well as the retail warehouse sector where vacancy rates have been falling. Both these sectors are areas of the market in which the company has positioned itself with good levels of exposure, indicating continued positive performance for the portfolio.’

abrdn Property shares fell 0.7% to 51.72 pence each on Tuesday afternoon in London.

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