UK-listed REITs have had to adapt to shifting ground for some time. Brexit uncertainty, the long decline of retail property and the rapid rise of industrial and logistics (I&L) assets have all reshaped the market.
A more recent challenge was soaring interest rates, which pushed average discounts to net asset value (NAV) to around 24% in 2023. Now, as economic conditions start to settle, there are early signs of a cautious recovery. But as in previous cycles, not all will benefit equally. The strongest REITs will be those with high-quality assets, careful financial management and leadership able to navigate what remains an unpredictable landscape.
With inflation cooling and interest rate cuts widely anticipated, REITs are starting to look attractive again to investors seeking liquidity and income. There are signs of renewed transactional activity. While UK commercial property investment volumes in Q1 were down 9% from the previous quarter, at £9.9bn, some REITs are using this moment to rebalance portfolios, capitalise on repriced assets or exit underperforming segments of the market.
Certain sectors are proving more resilient than others, logistics being a good example. According to Savills, UK I&L take-up reached 27.97m sq ft in early 2024, a slight year-on-year rise driven by supply chain reconfiguration, regional fulfilment and last-mile delivery, especially in constrained urban locations.
The best-performing REITs of the next cycle won’t be those that simply waited out the downturn
In the data centre market, legal and technical complexity is growing rapidly. AI-driven demand is supercharging interest in the sector. CBRE expects a record 20% increase in co-location capacity across Europe’s five largest data centre markets in 2025, including London. But constraints in this sector are no longer just about land; power supply, grid connectivity and environmental regulation are now central. Operators and REITs need watertight land rights and infrastructure agreements to stay competitive.
Residential REITs, particularly those focused on build to rent, continue to benefit from long-term structural drivers. Affordability constraints and demographic trends support demand for rental stock. In Scotland, rent controls have dampened appetite in recent years, but the draft Housing (Scotland) Bill could offer a more balanced approach.
Hospitality and student sectors rebound
There has also been a notable rebound in hospitality and student accommodation, as the return of international students and resilient tourism numbers fuel demand. Recent figures show rental growth of over 8% for the 2024-25 academic year, with occupancy rates at around 97.5%, well above the long-term average. These are operationally demanding sectors, but REITs with well-structured management agreements and clearly defined performance-based contracts are attracting interest, particularly where income visibility and incentive alignment are strong.
On the rise: Rental growth makes build to rent attractive to REITs
With interest rates expected to fall, investor attention is starting to shift. Lower borrowing costs could ease refinancing pressures and improve the relative appeal of listed real estate income, particularly compared with fixed-income alternatives. This creates an opportunity for REITs to offer a compelling mix of yield, liquidity and sector-focused exposure. However, scrutiny is high. Structural risks such as excessive leverage, rigid debt structures and weak governance are under the microscope.
While headlines often fixate on valuation swings or discount-to-NAV figures, the real factors driving recovery are operational. Clean title for disposals, certainty of income under lease contracts and legal readiness to transact in complex sectors such as data infrastructure or healthcare often make the difference between acting quickly or missing out.
This is not just a recovery story; it is a quiet reinvention. The best-performing REITs of the next cycle won’t be those that simply waited out the downturn – they will be those that used it to improve. That means stress-testing lease portfolios, regearing finance, resolving legacy legal issues and modernising governance to meet rising standards.
The REIT landscape is no longer defined by broad market movements, but by the distinct strategies and disciplines of specific trusts. So, while interest rate cuts may help, the real differentiators are less visible: legal robustness, contractual flexibility and governance strength. REITs that used the past two years to reset strategically already stand out. For others, the window to catch up is open, but narrowing.
This article was published in Property Week - read the original article here.
