UK Real Estate Investment Trusts (REITs) are a success story. Since the first REITs were established in 2007, the market has grown dramatically and provided strong returns for many investors. There is now real potential for further growth, not least in developing the role of REITs in meeting some of the challenges we face in social housing and healthcare.
We have worked with existing REITs, investors, developers, operators and funders to produce a report outlining where they are working well, how REITs might develop in the future and lessons that can be learnt from the use of REITs in other countries.
A record of success
The UK REITs market is dynamic and flexible and has proved attractive to investors. It offers the advantages of liquidity, onshore management and a globally recognised brand. This has meant that, since the financial crisis, more than 30 new REITs have listed on the London Stock Exchange and in that time they have raised more than £12 billion of equity.
We are also seeing growth in specialist areas such as healthcare and social housing and investment is increasing rapidly in alternative sectors, such as student accommodation, build-to-rent, assisted living, retirement living and care homes.
One answer to the housing shortage
One area where REITs can be a real force for good is in supporting the government’s aim of building 300,000 new homes each year. REITs could become a platform for investors wanting to have exposure to the UK residential market, providing the security and liquidity of the REIT structure as well as some tax advantages. In fact, a number of new REITs are emerging that are focused on residential property and these REITs have seen strong demand from investors.
The lesson from international experience is that the government can do much to stimulate investment through the tax system. Australia is facing an affordable housing shortage so the government has introduced new tax concessions to encourage REITs to invest. Equally, in Canada, a number of REITs are focused solely on residential property are supported by significant tax advantages and these REITs have delivered some of the highest returns across the stock market.
Meeting growing healthcare demand
Another area where REITs can help to address public sector funding constraints is in healthcare. An ageing population is driving increasing demand for new property developments ranging from GP surgeries to retirement living and care homes. In response, a number of REITs are working with the NHS and local authorities on a major programme of funding for developing state of the art medical centres across the UK.
There is also a real shortage of beds in care homes which is creating demand for new purpose-built developments. While US and UK REITs are already major investors in these facilities, there is clearly further growth potential for investment in this market.
Supporting a growing role for REITs
All those involved need to continue to build effective partnerships between REITs, developers and operators. The combination of their different expertise is vital to supporting innovative high quality schemes with a social purpose. That will only happen if we raise awareness of the potential for REITs to deliver long-term social benefits and educate both investors and operators about the risks and rewards of the structure.
Those partnerships will be able to seize the significant opportunity for REITs to build on their success and become a force for good in meeting the country’s housing and healthcare needs. Government can also help support these developments by looking at further reforms to the REIT regime to widen the permitted activities in which they can invest. By doing so it can show that the UK is open for business and wants to encourage global investment in key UK real estate projects.