UK real-estate equities have delivered stellar performances over the past decade, outperforming many asset classes, including equities, corporate bonds and gilts. To help spot the real-estate beneficiaries of the next decade it pays to identify the enduring socio-economic megatrends that will continue to shape the investment landscape.
We focus on five megatrends: the ageing population, digitalisation, generation rent, urbanisation and – overarching all of these – climate change, which sets the scene for identifying potentially attractive investments. Climate change is likely to result in a bifurcation in investment returns, with the greenest buildings being viewed as the most prime investments.
Rising demand for care homes
Those aged over 85 make up the fastest-growing age cohort in the UK. This is fuelling an increase in demand for both GP surgeries and care homes, which are exactly the types of assets owned and developed by some of the specialist real estate investment trusts (Reits). Impact Healthcare Reit (LSE: IHR) owns a portfolio of 126 high-quality care homes across the UK. It leases the care homes to operators on long leases, which are 100% inflation-linked.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The care-home market is highly fragmented and demand far exceeds supply of modern, purpose-built properties. Impact Healthcare also benefits from funding higher-returning development projects and undertaking asset management initiatives to improve the environmental quality of the assets. These favourable drivers enable the Reit to pay an attractive dividend yield of 5.2%, which is likely to grow over time in line with inflation.
A digital revolution
The digitalisation megatrend is being shaped by the fourth industrial revolution – a revolution of new technologies and big data, which is changing our lives and the ways in which we shop. Online sales now represent 26% of retail sales in the UK. A prime beneficiary of this trend is Tritax Big Box (LSE: BBOX), a specialist Reit that owns and develops large-scale logistics assets across the UK.
The growth in e-commerce has accelerated the demand for high-quality warehouse space in key strategic locations by tenants such as Amazon and Ocado. These tenants lease space on long leases with a large component of rent indexed to inflation. The Reit offers a growing dividend yield of 2.7% and aspires to more than double its net rental income through new developments over the next decade.
A better way to rent
Grainger (LSE: GRI) is benefiting from the generation rent megatrend. It is the clear market leader in the UK-listed private rental sector, with nearly 7,000 purpose-built residential properties. The company is both the owner and manager of its apartment blocks. It seeks to create a competitive advantage by offering its tenants good-value homes with a high level of service. This sets it apart from the typically poor rental experience in the amateur buy-to-let market.
Grainger currently offers a dividend yield of around 1.7%, which is well supported by a growing stream of apartment rental income. In addition, the company provides investors with exposure to a large and attractive development pipeline, capable of growing net rental income by around 2.5 times over the medium term.
-
8 of the best converted properties for sale nowThe best converted properties for sale – from an apartment in the former Hartley’s Jam factory on London’s Southbank, to a converted 18th-century mill in Itteringham, Norfolk
-
How taking a two-year career break could leave a £26k hole in your pensionCareer breaks are increasingly common but it is important to take steps to protect your pension, as gaps compound over time
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
-
Buy-to-let returns fall 59% amid higher mortgage ratesBuy-to-let returns are slumping as the cost of borrowing spirals.
