Insights series / 26 August 2021
4 ways REITs are a force for good
Now one of the most popular ways to invest in UK real estate, there are one hundred UK REITs that own around $141bn (£100bn) of property investments. In the move toward sustainable investments, can we consider REITs a force for good? In other words, how do REITs address environmental, sustainable and governance (‘ESG’) responsibilities within their portfolio?
Crestbridge executives joined Ashurst and Cushman & Wakefield on June 10th 2021 for a lively discussion of these points and more. Dean Hodcroft, Crestbridge CEO, was joined by Crestbridge Directors Ana Kekovska and Simon Todd for the video discussion which took place live and with an audience in attendance.
1. The REIT structure lends itself to specialisation – making it the perfect structure for ESG investing
Specialisation is good for business and subsequently, good for its investors. It is well established that a well-honed process, expertly executed, is the most efficient approach to a problem. Now, it turns out that specialisation, specifically REIT specialisation, is good for sustainable investments. REITs may specialise in parts of ESG, allowing them to better focus on the particular ESG issues at hand, whilst allowing investors to pick specific parts of the ESG problem they’d like to address.
2. REITs can and do invest in senior living & care facilities
The last of the Baby Boomers have already turned 55 – the minimum age from which pension pots can be accessed without tax penalties in the UK – and simply put, there’s not enough social care provision to keep up with upcoming demand as the baby boomer generation ages.
It’s clear public spending alone won’t be able to keep up with the upcoming demand, whilst research suggests seniors are moving into these types of facilities with more frequency and at younger ages than in the past, making the need urgent. Given the research and patterns of public spending, investors expect demand to increase for a variety of senior living arrangements, from different types of assisted care facilities through to retirement housing with a focus on independent living. Whilst REITs have already entered this market, some of them only recently established, to start taking this challenge on, it’s clear that they will have a big role to play in this part of the ESG equation.
3. REITs are providing extra healthcare provision
The UK has an aging population and with age, comes a steep increase in the demand to see a GP or other healthcare provider. According to the British Medical Association, the National Health Service (NHS) is experiencing some of the most severe pressures in its 70-year history, driven by increased demand for primary care providers. According to recent research from the BMA, buildings to house GP offices are in high demand and those that already exist may not be fit for purpose, with 40% of GPs believing their premises fell into this category. As it's not likely there will be a sudden dive in the demand for healthcare services, REITs are stepping in to fill the gap and satisfy demand for more primary healthcare facilities. As with senior living, this particular part of the ESG equation is addressed by a number of REIT specialists, who will have an increasing role to play in addressing this issue as the UK population gets older.
4. REITs are providing more social housing
Public spending greatly trails demand by a significant margin in the UK when it comes to social housing. Sustained shortfalls over a period of decades has meant the gap having to be filled by a number of the UK’s housing associations. These associations are major providers social housing for rent and of shared ownership schemes to assist those who cannot afford to buy a home to own one. These associations are not-for-profit organisations that have met the growing demand for social housing in their communities by taking on large amount of debt to finance the projects. REITs entering this part of the market has meant housing associations can continue to build these types of housing – without the need to continue to increase their debt burden by bridging the funding gap the housing associations face.
Once again, REITs specialising in this sector attracts investors looking to address this pressing social issue in their portfolios.
These are some significant market trends that REITs can and increasingly will, play a large role, showing how REITs provide a great social return and can indeed be a force for good. However, this good does not come at the expense of financial return – to find out more about why investors prefer investing in UK property through a REIT and how managers can obtain and maintain REIT status, please read the full 1500-word report.
06 September 2021 / Insights series
16 September 2021 / Insights series