Like most asset classes, listed real estate has had a bumpy 2025. The MSCI global real estate index closed August down ~2% in EUR year-to-date, albeit up ~10% from its early April lows when markets recoiled following President Trump’s Liberation Day tariff announcement. Unlike previous years, Europe (+5%) has been the strongest real estate market, while the US (-8%) has been the weakest, hindered by a weak dollar and capital outflows as a result of the country’s political and economic uncertainty[1].
Europe’s relative strength has helped SKAGEN m2 outperform the global index by around 5% in 2025[2] – the fund has around half its assets invested in European-based companies (compared to less than 10% for the benchmark) and is significantly underweight the US (38% exposure versus 60% for the MSCI index). European holdings also make up the fund’s four best contributors in 2025 – Public Property Invest (Norway), CTP (Netherlands), Intea Fastigheter (Sweden) and Helios Towers (UK), while all of the bottom five are US-listed.
Attractive portfolio
SKAGEN m2 maintains a concentrated portfolio of 33 holdings with the top ten representing nearly half (47%) of assets; these highest-conviction names come from resilient, defensive sub-sectors such as logistics / warehousing, digital infrastructure, healthcare, self-storage and towers. The fund also has selective exposure to segments more geared to cyclical recovery like office, retail, hospitality and housing to provide diversification that should help navigate the uncertain economic outlook.
The fund also remains invested in strongly capitalised companies, typically with conservative debt structures and solid cash flow generation which provides protection against interest rate uncertainty. Around half its holdings operate in areas that are relatively immune to tariffs, such as education, health care and social infrastructure, which protects the portfolio in an ever-changing trade environment.
Geographically, the fund is geographically diversified with meaningful allocations in Sweden (~13%), Belgium (~8%), the Netherlands (~7%) and the UK (~6%) outside of the US, while smaller positions in Brazil, Vietnam and Africa provide emerging market exposure.
The portfolio is also cheaper than the benchmark, trading at a discount on book value, enterprise and earnings multiples (see chart). The fund has a slightly lower dividend yield, reflecting a preference for companies that reinvest earnings rather than distributing them to shareholders.
Improving outlook
The outlook for global real estate is gradually improving. Inflation and interest rates in the largest US market are expected to fall, while borrowing costs are also predicted to come down in Europe, which would be favourable for SKAGEN m2’s portfolio. Monetary policy easing has historically been supportive with US listed real estate with REITs delivering average annualised USD returns of ~21% in the 12-months following Fed tightening cycles from 1990 to 2023, beating both private real estate (~11%) and the S&P 500 index (~17%) over the same period.
The longer-term performance of US REITs is similarly compelling over the same timeframe with annualised returns averaging ~12% across different macro and market cycles until recently (see chart). The headwinds of COVID and a subsequently higher inflation and interest rate environment have seen this fall to ~6% since 2020, suggesting the possibility for mean reversion over the next few years as macro conditions normalise and become more favourable.
In addition to cheaper financing costs, real estate companies are also expected to benefit from greater access to debt finance, particularly as many have deleveraged in recent years. This should help drive capital market activity – transaction volumes in private markets rose 21% year-on-year in the first half of 2025 with more deals across the US, Europe and Asia, while M&A involving listed real estate companies is also up globally. This is positive for future investment with sentiment further boosted by office vacancy rates stabilising around the world, notably in prime business areas like New York, as leasing rates and rents increase.
SKAGEN m2 currently has around 5% of assets exposed to office-related companies, while almost a fifth (19%) of the fund is invested in digital real estate such as data centres and towers. The rapid growth of data centres in recent years, largely to meet the needs of big tech companies and AI, means that their construction is on track to overtake that of general offices in the US over the next few months. From an investment perspective, the segment is highly attractive as demand is expected to outstrip supply for years to come, driving strong rental growth, as data usage increased globally and across sectors outside of technology.
Many real estate segments benefit from a lack of supply because of reduced recent construction due to higher interest rates and economic challenges which benefits existing assets, particularly when the cycle enters its recovery phase.
Finally, valuations are also supportive for listed real estate with current book value and cashflow multiples well below historic averages and at multi-year lows relative to the broader equity market. This provides scope for a significant re-rating as economic conditions and investor sentiment continue to strengthen. For stock pickers like SKAGEN m2, who are able to exploit opportunities in the markets and segments combining attractive short-term pricing with long-term structural growth, the changing world for listed real estate has rarely looked more exciting.
Watch the latest SKAGEN m2 webinar with Portfolio Manager, Michael Gobitschek: Market update with SKAGEN m2
[1] FTSE EPRA Nareit Global Real Estate Index Series for Europe and US returns as at 31/08/2025.
[2] Net of fees as at 31/08/2025.
Information as at 15/08/2025 unless otherwise stated.