This article was published in The Telegraph’s Questor column earlier today.

UK inflation held steady at 4% this week, a reminder that cost-of-living pressures have started to ease and interest rates, which have in all likelihood peaked at 5.25%, will start to fall at some point.

Investors who want to exploit this should turn to real estate investment trusts (Reits), a sector that suffered as interest rates surged over the past two years but has recently rallied as the pressure on the value of their commercial properties and finances abates.

TR Property (TRY ), a £1bn investment trust, is the only London-listed fund investing in Reits across Britain and Europe. As such, it is the best way to gain quick exposure to an asset category that’s enjoying a spike in merger and acquisition (M&A) activity as bidders jump on share prices left cheap in the rout.

At 316p, TR Property shares stand 3.2% below the net asset value (NAV) of its investments. That is not a wide gap, with the discount narrowing further this week after almost halving from 12% as recently as last October. However, there is still plenty of value in the portfolio given many of its holdings trade well below NAV.

For example, in Britain, where fund manager Marcus Phayre-Mudge has put 37% of the trust’s assets, shares in generalist Reits that invest in offices, industrial and retail properties trail at an average 13% below asset value.

Meanwhile, specialist funds focused on warehouses, student accommodation, and residential and healthcare properties can be bought at discounts from 16% to as much as 64%.

There’s a similar trend in Europe, where the London-listed Schroder European Real Estate (SERE ) and Tritax Eurobox (EBOX ) Reits languish 37% and 46% respectively below NAV.

All this means an attractive ‘double discount’ in TR Property that should start to unwind as the Bank of England begins to slowly cut its base rate later this year.

Phayre-Mudge says Reit shares plunged in 2022 and 2023 because they were ‘an easy way to play a negative view on rising interest rates’. The opposite should now apply as interest rates come down in the UK and Europe.

Investors have seen how this works: TR Property’s own shares soared by 34% in the last nine weeks of 2023 as expectations of early rate cuts intensified. The shares have retreated 9% this year amid a realisation that inflation will be hard to beat and interest rates may be high for longer.

The important point, though, is they are unlikely to rise, with the economy feeling the pain of increased borrowing costs.

‘Whether interest rates will fall quickly or not, they have peaked,’ said Phayre-Mudge, who has managed TR Property since 2011.

He said the lifting of rates pressure would highlight an astonishing fact about commercial real estate: despite the crushing of share prices in the past two years, rents have grown in most areas.

He added that the rise in rents reflected strong fundamentals, with the limited supply of properties combining with strong tenant demand and the prevalence of inflation-linked leases.

The supply-demand imbalance is particularly acute in logistics hubs serving the growth in e-commerce but is also evident in offices, where employers are keen to attract workers with sustainable, ‘best-in-class’ buildings.

Phayre-Mudge has avoided London offices thanks to the slow return of workers after the pandemic but said that was not a trend in Europe, where less punishing commutes make working from home less desirable.

Even the hard-pressed retail sector has shown signs of recovery now that about 30% of space has been removed in response to the rise in online shopping.    

A spate of bids and fund mergers has helped lift TR Property’s share price by 18% in the past 10 months. Industrials Reit and Ediston Property were bought at premium prices by US buyers, while CT Property agreed to merge with LondonMetric Property (LMP) before the latter unveiled an even bigger £3.9bn combination with LXi Reit (LXI ) in December.

Consolidation in the sector continued this week when two other holdings, UK Commercial Property (UKCM ) and Tritax Big Box (BBOX ), agreed to an all-share merger. However, the opposition of the former’s chair is a sign this may not be a done deal.

Either way, M&A is likely to remain a supporting factor for TR Property. That’s a relief for investors, who have seen their shares fall 3.9% in the past five years even when we include the well-covered semi-annual dividend paid by the fund, which yields almost 5%.

Looking forward, the prospect of lower interest rates should ensure the shares continue to rise from their eight-year low last autumn.

Questor says buy TR Property.

TRY key facts

Market value: £990m

Year of listing: 1905

Discount: 3.2%

Average discount over past year: 8.1%

Yield: 4.9%

Most recent year’s dividend: 15.5p

Gearing (Jan 2024): 12%

Annual charge (Sept 2023): 0.84%