The rise in popularity of UK Real Estate Investment Trusts (REITs) over the last few years has been remarkable. The REIT regime came into force on 1 January 2007 and by February 2007 nine of the UK’s largest listed property companies had converted to REIT status. Fast forward 10 years and there are now more than 70 UK REITs.

Kersten Muller Grant Thornton

Kersten Muller, head of real estate and construction, Grant Thornton UK

The rise in popularity of UK Real Estate Investment Trusts (REITs) over the last few years has been remarkable. The REIT regime came into force on 1 January 2007 and by February 2007 nine of the UK’s largest listed property companies had converted to REIT status. Fast forward 10 years and there are now more than 70 UK REITs.

A REIT can offer significant benefits for investors and operators alike. The brand is recognised and trusted globally, with most major economies having an equivalent regime. There has been a marked increase in the number of REITs coming to the market in the last 5 to 6 years, with more than 30 new REITs listing on the London Stock Exchange and raising more than £12 billion of equity.

Our latest report, REIT’s as a force for good, shows that many new REIT’s are now focusing on specialist sub-sectors, such as healthcare and social housing, which meet increasing demand from investors for both a financial return and an investment that focuses on social property.

Supporting healthcare

An ageing population is driving increasing demand for new property developments, ranging from GP surgeries to retirement living and care homes. New REITs are now entering the market and working with operators to provide capital and property expertise in this area. In primary care, REITs are also working with the NHS and local authorities to build out a substantial development pipeline of primary care centres.

GP surgery

“REITs are working with the NHS and local authorities to build out a substantial development pipeline of primary care centres”

Source: Pixaby

However, specialist sectors still only make up a very small percentage of the total REIT market in the UK. In more mature REIT markets such as the US, there is a stronger track record of their use to develop healthcare property assets. There is therefore significant growth potential for UK REITs as they have an opportunity to play their part and meet this growing demand.

Building more homes

With the Government’s aim to build 300,000 new homes each year, REITs potentially have a significant role to play. In recognition of this opportunity, a number of new REITs are emerging that are focused on residential property.

The lesson from international markets is that institutional investment can have a major impact on the provision of homes. It also shows that government policy can do much to stimulate this kind of investment through the tax system and that the biggest challenge is perhaps the cultural shift needed to support alternative forms of housing supply.

Social housing provision

In the face of public funding challenges, social housing is also benefitting from investment from REITs. By partnering with housing associations in innovative ways, REITs can be an effective financial solution to social housing provision.

REITs are well suited to act as the owners of property assets with a social role, by working in partnership with operators. The collaboration between the two can provide property management expertise to complement the expertise of either public or private operators in meeting the needs of their customers.

While this trend in specialist REITs looks likely to continue, raising awareness of the potential for REITs to deliver long-term social benefits calls for greater education of both investors and operators about their structure. It would be great to see further joint ventures between REITs, operators and developers to accelerate the building of homes.

Government also has a critical role to play in creating structures that foster innovation, investment and development in property. The UK REIT regime is still relatively new and the world has evolved significantly since the regime was first introduced in 2007, while the rules relating to the qualifying criteria have remained largely unchanged. There is an opportunity now to widen the permitted activities of REITs to open up investment opportunities in priority areas, such as housing development, infrastructure projects and renewable energy.