- Total number of REITs in the UK has increased 29% to 157
- Removal of stock market listing requirement leading to wave of private REITs
The number of new Real Estate Investment Trusts in the UK has increased 61% in the past year to 45 in 2023/24 (year-end April 5), up from 28 in 2022/23, say Chartered Accountants and Business Advisers Lubbock Fine.
Rule changes have made it far easier to establish a Real Estate Investment Trusts (REITs). The total number of REITs in the UK now stands at 157, a 29% increase on the 122 last year.
Chief among these changes is the removal of the requirement for a REIT to be listed on a stock market. This avoids the financial and administrative burdens of being on a stock market such as admission fees and reporting obligations.
REITs are a popular investment structure in part due to the tax advantages, that were an exclusive club until the rule changes. Unlike a conventional property company, they are exempt from corporation tax on profits from rental income.
Another recent change that has encouraged the creation of more REITs is a relaxation of rules for overseas investment, where many more overseas companies can now be considered ‘REIT-equivalent’. These new rules have enabled more overseas funds to convert to REITs.
Neil Williams, Partner at Lubbock Fine, says: “We’ve seen a significant increase in the number of REITs in the past year. The removal of the listing requirement is already producing huge cost savings.”
“A lot of ‘new’ money is being injected into REITs – while at the same time a lot of existing commercial property investment is being converted into REIT structures. Many of the ‘new’ REITs are existing investment funds converting and using the tax advantages to pass on more value to investors and increase the Rate of Return.”
The tax incentives for investors putting money into REITs
Says Neil Williams: “REITs are now very low-cost to set up and the tax benefits are almost instant.”
“More and more funds are testing the waters with the new REITs regime. Now that investors see the benefits, the number of REITs is growing rapidly. This trend will likely continue into next year.”
REITs are increasingly investing in alternative real estate classes, such as student accommodation and logistics warehouses. Renewable energy projects have also popular investments for REITs in recent years.
“Student accommodation and distribution centres warehouses have delivered strong returns over the last decade. REITs that focused on renewables have historically struggled, but the new regime might encourage a new wave of investment in this sector.”
Number of new REITs has grown rapidly as a result of recent rule changes
*Source: HMRC. Year end April 5.
