UK shares are on the march as the first interest rate cut’s finally here! To kick off August, UK interest rates dropped by 0.25% for the first time since inflation reared its ugly head, bringing them down to 5%.
Providing inflation doesnât make a sudden comeback, more cuts could be on their way. And some forecasts are predicting them to fall to as low as 3% by the end of 2025.
Needless to say, thatâs terrific news for businesses and consumers alike. But itâs a particularly strong tailwind for these two UK shares from my income portfolio that could now be on track to surge, even if I only had as little as £200.
Warehouses for the future
Londonmetric Property (LSE:LMP) and Warehouse REIT (LSE:WHR) have struggled in recent years, especially the latter. Despite occupancy and rental cash flows remaining strong, both companies have been under pressure from falling property prices. After all, higher interest rates triggered a cyclical downturn in the real estate market, even for commercial properties.
The companies are quite similar, with almost identical business models. They buy or build well-positioned warehouses and lease them to businesses that predominantly operate within the e-commerce space.
Londonmetric recently shook things up with its LXi REIT merger that expanded the property portfolio to include assets across the entertainment, convenience and healthcare sectors. Nevertheless, managementâs core focus remains on the logistics industry. Meanwhile, Warehouse REIT is still prioritising urban last-mile locations.
Combined, they provide a wide spectrum of exposure to the logistics industry that continues to expand rapidly alongside online retail.
Impact of interest rates
As previously highlighted, higher interest rates have been quite an unfavourable headwind for these stocks. Since the start of 2022, their share prices have tumbled by 30% and 50% respectively. As the smaller enterprise, Warehouse REIT was hit far harder and even had to start selling off some properties to shore up the balance sheet.
But both companies are now in a seemingly strong financial position. And with interest rates finally going down, the pressure is being lifted. A lower cost of debt helps free up more cash flow, resulting in increased financial flexibility. It also paves the way for steadily recovering property prices and turning the recent headwinds into tailwinds.
Obviously, there are still risks to consider. If the Bank of England cuts rates too quickly, inflation could come back, derailing the recovery process and sending property prices back in the wrong direction.
Alternatively, a sudden slowdown in economic activity could also result in tenants being unable to keep up with rental payments, compromising cash flows and re-payment plans for their own debts.
Nevertheless, these businesses appear to be capable of navigating such disruptions. And providing goes according to plan, these shares could be in for a rapid recovery, delivering significant capital gains while simultaneously boosting dividends. Thatâs why Iâm eager to start topping up my existing positions while prices remain low.
The post 2 no-brainer UK shares I’d buy with just £200 appeared first on The Motley Fool UK.
Investing in AI: 3 Stocks with Huge Potential!
🤖 Are you fascinated by the potential of AI? 🤖
Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.
If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investmentâ¦
Then you won’t want to miss this special report inside Motley Fool Share Advisor – ‘AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!
And today, we’re giving you exclusive access to ONE of these top AI stock picks, absolutely free!
Get your free AI stock pick
More reading
How Iâd invest £10k in this stock market rally
After a tough time, analysts expect a big earnings bounce for this FTSE 100 stock
A once-in-a-decade chance to buy FTSE shares for passive income!
3 FTSE 100 shares Iâd buy to create lasting passive income
Zaven Boyrazian has positions in LondonMetric Property Plc and Warehouse REIT Plc. The Motley Fool UK has recommended LondonMetric Property Plc and Warehouse REIT Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
