The UK real estate investment trust (REIT) industry is in a wave of consolidation.
Mergers and acquisitions (M&A) activity is on the rise, with leading players strategically combining forces to gain a competitive edge. This trend presents a compelling opportunity for institutional investors seeking exposure to the most promising sectors of the UK property market.
While sometimes this activity can be seen to present less choice or range, it can also be an indicator of those sectors and asset classes which are thriving.
One factor could be that REITs no longer have to be listed yet retain the same tax advantages so long as the appointed administrator understands how to comply with the requirements of the UK’s REIT regime.
The current phase of consolidation is highlighting the most attractive sectors for long-term investment in UK real estate including:
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Industrial/Logistics
The rise of e-commerce has fueled a surge in demand for warehouse and logistics space.
Initially the sector saw a boost during COVID and values increased dramatically. However, values have since seen a significant “correction” but are now stable and on the rise.
Consolidation among industrial REITs allows them to expand their national footprint, acquire prime distribution centers near major transportation hubs, and cater to the evolving needs of online retailers.
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Data Centres
The UK is positioning itself as a hub for technology and finance, leading to a growing demand for data storage and processing facilities. Investment in state-of-the-art facilities with advanced security features and robust cooling systems, attracts major cloud providers and tech companies as tenants.
Following the recent change to a Labour government, the new Housing and Communities Secretary Angela Rayner has ‘called in’ two previously refused planning consents for hyperscale data centres, and the new Chancellor Rachel Reeves has made planning reform and infrastructure investment a core part of the new government’s policy.
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Later Living
Healthcare, care homes and later living assets are showing strong demand from investors, with demand expected to significantly outstrip supply for the foreseeable future.
The UK’s aging population is driving the need for specialised healthcare and later living facilities. Consolidated Healthcare REITs can acquire and develop senior living communities, medical office buildings, and other properties in high-demand locations, providing essential services and generating stable income streams.
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Student Accommodation
The UK is home to many world-renowned universities, attracting both domestic and international students. Student accommodation REITs benefit from a steady flow of students in need of housing. The consistent demand annually can ensure a steady occupancy rate and subsequent return on investment.
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Residential
The UK suffers from a chronic undersupply of homes due to regulatory constraints, high land prices and slow planning process. The combination of strong and growing demand, supply constraints, government support, stable income potential, historical property value growth, economic and political stability, diversification benefits, and advancements in property management makes the residential sector in the UK an attractive option for investors.
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Hotels and Hospitality
Traveller numbers across the world are beginning to reach, or exceed, pre pandemic numbers.
As a result, hotels are experiencing a similar yield story to the Living Sector due to supply and demand. Popular tourist destinations and business travel hubs generate consistent demand for hotel space which in turn has the potential to provide income generation possibilities.
Opportunities All Round
The REIT consolidation trend in the UK represents a maturing and increasingly dynamic industry.
For investors, it presents a valuable opportunity to access leading sectors of the real estate market through strategically positioned REITs. By investing in consolidated REITs, institutions can gain exposure to high-growth sectors, benefit from economies of scale, and participate in the continued growth of the UK property market.
For managers looking to launch or even participate in M&A activity, it is important to select partners with the experience and expertise to support long-term, and by its nature a relatively illiquid sector.
JTC now has 34 offices in 21 jurisdictions including globally favoured REIT administration financial including:
United Kingdom
- With a lot of countries going through elections this year , the UK is seen as a stable and centrist jurisdiction for the next few years, which may drive further investment into real estate. The recent election of a new government with a strong majority should result in relative stability and investor confidence that has been lacking in recent years.
- The UK market is well-regarded and familiar to international investors.
- The UK offers a favourable tax regime for REITs, including exemption from corporation tax on rental income and capital gains from property sales within the REIT.
- The presence of the London Stock Exchange (LSE) provides a robust platform for listing REITs, attracting significant investment.
Channel Islands
- Tax Efficiency: Jersey and Guernsey offer no capital gains tax and no withholding tax on dividends, making it attractive for REITs.
- Regulatory Environment: Both the Guernsey Financial Services Commission (GFSC) and the Jersey Financial Services Commission (JFSC) provide robust yet flexible regulation.
- Expertise and Infrastructure: Both Guernsey and Jersey have well-established financial services sector with extensive expertise in the administration of REITs and real estate structures.
Luxembourg
- Tax Flexibility: Luxembourg offers a flexible tax regime and treaties that may reduce withholding taxes on dividends for international investors.
- Financial Center: It is a leading financial center in Europe, providing extensive services and infrastructure for fund administration.
- Regulatory Framework: The Commission de Surveillance du Secteur Financier (CSSF) ensures a stable regulatory environment.
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