Real estate investment trusts (REITs) are often found in the portfolios of UK investors aiming for passive income. This is because the rules around these specific trusts require that 90% of profits are returned to investors in the form of dividends.
The best part is, they provide exposure to the real estate market without the high cost of property investment in the UK.
The FTSE 250 is home to some of the UK’s best REITs, offering high yields, inflation protection and long-term capital growth. Lingering inflation has been tough on REITs lately but this could change soon with the promise of interest rate cuts.
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Here are three popular REITs worth considering for passive income in 2025.
Primary Health Properties
For investors looking for stability, Primary Health Properties (LSE:PHP) is a good option to consider. It focuses on medical centres and NHS-backed properties, providing essential infrastructure that generates consistent rental income.
The yield’s higher than most, at around 7.5%, having risen from only 4% in 2020. The company’s also increased dividends consecutively for 27 years at an average of 3.3% a year.
However, the high yield’s largely a result of the share price declining 41.6% over the past five years.
High inflation and rising bond yields have suppressed property valuations, leading to a drop in PHP’s net asset value (NAV). The Bank of England’s hinted at rate cuts this year but if they don’t materialise, there’s a risk the price could fall further.
However, should it recover, the current low valuation could be an opportunity to grab some shares at a low price.
Tritax Big Box REIT
Tritax Big Box (LSE: BBOX) is a logistics-focused REIT that’s popular among dividend-focused investors. It owns large-scale warehouses essential for supply chains, so its tenants are usually well-established companies that sign long-term leases.
Historically, it’s enjoyed annualised rental growth of 5.1% and maintains near 100% occupancy at most times. The yield’s a bit smaller at 5.25% but its price is more stable, up 2.5% in five years. Barring a minor reduction in 2020, the yield has been increasing for 10 years.
But like any property investment, it faces risks from interest rate hikes, tenant stability and rental growth. If construction and labour costs rise faster than rental income, it could squeeze profits and reduce dividends.
Some notable tenants include Amazon, Tesco and Ocado.
PRS REIT
PRS REIT focuses on the private rental sector (PRS), providing exposure to the growing demand for high-quality, affordable rental housing in the UK.
With property prices soaring, the demand for affordable rental housing’s on the up. PRS’ noted this need and positioned itself to benefit from long-term rental income.
At only 3.8%, it has the lowest dividend of the lot but the price is up 17% in the past five years.
Investing in REITs
FTSE 250 REITs offer attractive opportunities to earn passive income from property without the high cost of direct ownership. Whether aiming for high-yield dividends, inflation protection or long-term growth, the above options each offer a unique investment case.
As always, it’s crucial to consider the risks and assess individual investment goals. But for those seeking passive income, REITs are worth considering as part of a well-diversified portfolio
