Real estate investment trusts – bust or boom?

The market is about to see significant change in one direction…

Real estate investment trusts – bust or boom?

The real estate investment trust (REIT) market is estimated to grow by 11.8% over the next three years, market analysis by mortgage broker Henry Dannell has revealed.

By 2025, the market’s worth is forecast to hit almost £7 billion. But what is REIT, and why is there an expectation that its market is about to see such a boom?

A real estate investment trust is a property investment company that invests in properties using a cash pot gathered from a large number of investors. The profits generated by these investments, from either rental income or sales, are paid back to the investors in the form of dividends.

REITs were introduced in the UK in 2007 and are listed on the stock exchange. The profits made by investors are not subject to corporation tax and can be held in ISAs, SIPPs, or LISAs. These, Henry Dannell said, make REITs tax efficient, which is one of the market’s biggest draws.

The mortgage broker added that there is currently a strong appetite for REITs. This year, the UK market is valued at £6.2 billion having enjoyed annual value growth of 3.8%. This represents a much-needed recovery after a significant decline caused by the pandemic which saw the value fall by 7.6% in 2020 and a further 20.6% in 2021. Despite the recovery in 2022, the REIT market is still down 1.6% on the decade and down 24% compared to its pre-pandemic peak of £8.2 billion in 2019.

Henry Dannell’s forecast, however, suggests that the value of the REIT market is on an upward trajectory, estimated to reach £6.9 billion by 2025 after expected growth of 11.3% in 2023, a further 0.2% in 2024, and another 0.2% in 2025.

“The increasing value of the REIT market is, we believe, a result of financial uncertainty for so many UK residents,” Geoff Garrett, director of Henry Dannell, commented. “With taxation rules up in the air and set to change dramatically over the coming months and years, as well as the soaring cost of living and historically high house prices, more and more people are being drawn to this alternative, more tax-efficient path to property investment.

“REIT investment requires smaller lump sums of investment capital and presents a lower level of risk due to the fact that many different investors are sharing the investment pie – instead of one person exposing large amounts of money to market risks, lots of people with smaller exposure are sharing any ups and downs.”