Slim pickings in REIT sector as recovery takes hold

Written by Richard Williams , Senior Property Analyst, QuotedData

At a time when real estate fortunes are turning positive, the UK REIT sector offers slim pickings to attentive investors. Three years battling wide discounts to NAV and pulsating merger and acquisitions (M&A) activity has seen the number of listed real estate stocks almost halve.

Mid-way through 2022, when the impact of soaring inflation and interest rates were only just starting to be felt, there were 73 real estate companies listed on the London Stock Exchange . In the three years since, 17 have been lost to mergers or take-private deals (including three currently at differing stages – with Warehouse REIT set to be taken private, Primary Health Properties PLC (PHP) (PHP) acquiring Groupe Assura , and Unite in for Empiric Student Property plc ). A further 14 have either wound up/are winding up or have put themselves up for sale.

That leaves just 42 listed real estate companies.

While many of those gone have justifiably been put out of their misery, more have been lost on the cheap. At a time when the sector is bouncing back from the bottom of the market and investors look to participate in the recovery – they are left with few choices.

LondonMetric Property PLC (LMP) has been a trailblazer in M&A with significant acquisitions in the past three years including LXi REIT PLC , Urban Logistics REIT and CT Property Trust. This has helped transform it into a FTSE 100 company. Tritax Big Box REIT has also been on the front foot, gobbling up UK Commercial Property REIT and taking a shot at Warehouse REIT.

Merger benefits are obvious and investors will gain superior total returns as greater scale leads to lower running costs, higher earnings and dividend progression, as well as greater liquidity in their shares. However, investors have also lost the ability to gain exposure to certain micro themes in real estate sub-sectors, where there are now few options.

Take the logistics sector for example. We once had specialist REITs investing only in large warehouses (Tritax Big Box), single-let ‘last-mile’ logistics (Urban Logistics REIT) and multi-let industrial properties (Warehouse REIT and Industrials REIT – taken private), as well as European-focused logistics trusts (abrdn European Logistics Income – currently in wind down, and Tritax EuroBox – taken private). These all played to nuanced parts of the market and supply-demand dynamics, giving investors greater choice during the property cycle.

The logistics sector is now (or soon to be) left with Tritax Big Box, which through acquisition has moderated its focus to be an all-encompassing logistics player (especially if it returns with a winning bid for Warehouse REIT), the behemoth that is SEGRO (which invests across the logistics spectrum in the UK and Europe) and LondonMetric (which also has a large portfolio of long-income assets attained through the LXi acquisition).

As well as offering access to micro themes, a greater number of trusts also give investors the opportunity to switch managers when performance or governance issues arise whilst retaining exposure to the particular asset class.

There has been for a long time two primary healthcare REITs (soon to be one with the merger of PHP and Assura), two care home landlords (now one – Target Healthcare REIT, after Care REIT was taken private in May), two social housing REITs (now one), and three student housing specialists (soon to be one). Each offered a differentiated approach through their management teams.

Gaping holes now exist in the REIT sector.

Will we see another residential focused company join the market after the trial and tribulations that that listed sub-sector has endured? It is now almost non-existent with the much-publicised failings of Home REIT, conflict of interest issues at Civitas Social Housing (taken private by a long-term shareholder), policy and regulatory concerns for Ground Rents Income Fund (in wind down), and governance issues at PRS REIT (up for sale). Their collective failings have come at a time when the supply and demand characteristics are as favourable as they have ever been and left investors little options to gain exposure to them in the stock market.

There are also no dedicated REITs for data centres (when demand is booming from hyperscalers as AI takes off) and hotels (which seems odd given the strength of the tourism and hospitality sectors in the UK).

Larger, more cost-effective REITs are welcomed, but so, too, are greater options for shareholders looking to grow exposure as the sector’s fortunes improve. While new listings are clearly needed to plug the gaps in the REIT sector, for now let’s just hope that the sector re-rates to a point where the M&A window closes soon before the sector shrinks further.

NB: this article has been prepared by Marten & Co and is for information purposes only. It is not intended to encourage the reader to deal in the security or securities mentioned within it. QuotedData is a trading name of Marten & Co Limited which is authorised and regulated by the Financial Conduct Authority. Marten & Co is not permitted to provide investment advice to individual investors.

© Copyright 2025 QuotedData All Rights Reserved