Whether investing for growth or passive income, buying stocks at a discount is a proven recipe for success – a strategy that makes a lot of REITs stand out in 2026.
With higher interest rates decimating property values, investor sentiment in this sector has similarly tanked. The result has been many REITs getting aggressively sold off to the point that many are now trading below their net asset values (NAV).
But as experienced investors know, unpopularity often breeds opportunity. And after falling by almost 50% in the last five years, while still delivering dividend growth since 2021, Workspace Group (LSE:WKP) shares now offer a tasty-looking 7.2% yield.
So is this a passive income goldmine?
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Why are the shares down 50%?
As a quick introduction, Workspace owns, manages, and leases flexible office spaces to small- and medium-sized businesses (SMBs) across London. However, rather than locking in decade-long contracts, the group specialises in more short-term flexible leases, typically spanning between six and 36 months.
While this does expose Workspace to a higher churn, it also means management’s able to adjust prices far more rapidly, remaining continuously competitive while simultaneously lowering the financial barriers to onboard new tenants.
The only trouble is, demand for office space has been pretty weak over the last five years.
With the rise of remote working alongside tax hikes for SMBs, attracting new tenants has been tough. And with £864m of debts & equivalents on the balance sheet, the company’s been forced to start selling off underperforming real estate assets in a lacklustre pricing environment.
Pairing this with general weak sentiment within the REIT space, it isn’t surprising to see the stock get hit. Yet, following a recent trading update, 2026 could be the year that all starts to change.
An incoming turnaround?
In response to the tough market conditions, management deployed a new strategy called ‘Fix, Accelerate, Scale’.
The goal is to deliver operational improvements and secure novel partnerships to drive higher occupancy while simultaneously optimising its real estate portfolio, upgrading outperforming assets and disposing of £200m worth of underperforming ones.
It’s still relatively early days, but to management’s credit, the strategy seems to be working.
- The firm’s loan-to-value ratio is slowly ticking down as management uses disposals to tackle leverage.
- Like-for-like occupancy is now back on the rise, expanding 0.9% to 81.2% in its most recent quarter.
- Enquiry-to-lettings conversion has climbed from 16% to 19% between September and December 2025.
These are all early signals that a cyclical recovery could now be underway. So is this a rare buying opportunity hiding in plain sight?
Where’s the risk?
Seeing recovery signals is obviously encouraging. However, Workspace isn’t out of the woods just yet.
Despite occupancy now ticking back up, net rental income’s actually still falling due to a weaker price environment. This downward pressure on cash flow, alongside debt interest expenses, means that the group’s trading profits are actually lower than the amount of money being paid out in dividends.
In other words, today’s impressive dividend yield is vulnerable to a potential cut if market conditions don’t improve in the coming quarters.
There’s still a lot of macroeconomic uncertainty surrounding this REIT. But with shares trading at a 44% discount to NAV, that might be a risk worth considering.
