A real estate investment trust, more commonly referred to as a REIT, enables investors to pool their resources, which investment managers then use to buy assets.
But what are the advantages and disadvantages of investing in REITs, and should you consider them? Let’s break it down.
What are REITs?
REITs are investment trusts that own or finance income-generating real estate. They are traded on the London Stock Exchange, meaning that they are easy to invest in and highly liquid.
More specifically, REITs are property stocks that have registered for special status in order to acquire certain tax advantages (like not having to pay UK corporation tax).
Under the REIT regime in the UK, 75% of the company’s assets must be properties that are available to rent. And 75% of profits that these companies generate must come from rental income.
REITs usually sign their tenants to long-term leases, meaning their income tends to be quite reliable. And, the vast majority of this income is shared out to investors in the form of dividend payments.
In fact, in exchange for receiving those tax advantages described above, REITs are obliged to distribute a minimum of 90% of annual net profits to shareholders by way of dividends. This makes them especially popular stocks with income investors.
REITs in the UK tend to focus on one specific type of property segment. However, some offer exposure to a multitude of real estate classes, providing added investor protection through diversification. And some even contain other asset types beyond rental real estate.
Property segments include:
- Retail properties.
- Office blocks.
- Industrial spaces.
- Residential real estate.
- Healthcare properties.
- Warehouses and distribution complexes.
- Data centres.
- Renewable energy infrastructure.
Types of REITs
While most real estate investment trusts follow a similar business model, the approach to generating income can vary significantly, as can their corporate structure. As such, there are a variety of REIT types for investors to consider.
- Equity REITs – This is the most common type, providing investors access to portfolios of income-generating assets across the property segments, such as warehouses, office buildings, retail parks, healthcare facilities, etc.
- Mortgage REITs – Instead of investing in assets, mortgage REITs, or mREITs, provide the financing for income-producing real estate, earning interest to fund shareholder dividends.
- Private REITs – These trusts are typically only available to institutional investors as they do not trade on a stock exchange and are exempt from many regulations that equity REITs have to follow.
- Public non-listed REITs (PNLRs) – In the US, PNLRs are registered with the Securities Exchange Commission (SEC) but do not trade on a stock exchange, making liquidity sometimes challenging.
What are the benefits of REITs?
Buying real estate using an investment trust rather than through a direct investment comes with quite a few advantages.
- Accessibility – Unlike direct investment, REITs enable investors to own a piece of real estate even with only a few hundred pounds in the bank. There’s no need to go into debt with a mortgage or save up for a downpayment on a property.
- Diversification – REITs open the door to ownership of properties that may be too expensive to own directly, such as hospitals, wind farms, and warehouses. This grants exposure to the more lucrative commercial and industrial segments of the real estate market rather than just residential.
- Liquidity – Buying and selling property directly can be a lengthy process, taking weeks or even months. However, since REITs trade like stocks on an exchange, it’s possible to buy and sell almost instantly.
- Professional Management – Directly investing in real estate requires knowledge and expertise. However, by owning shares in a REIT, all the investment decisions are handled by a team of experts, allowing shareholders to remain passive real estate owners.
- High Dividend Yield – Due to a large portion of net profits being redistributed as dividends, REITs are notorious for offering above-average dividend yields, leading to a high passive income.
What are the risks of REITs?
Despite offering a wide range of benefits, REITs are far from a risk-free investment. And there are some notable disadvantages when compared to a direct investment in real estate.
- Volatility – As shares are publicly traded, investors can quickly react to new information. However, that also opens the door to panic selling, which can introduce a lot of share price volatility despite the underlying real estate assets remaining stable.
- Fees – The management team of a REIT charges a fee for their service, which eats into profits, reducing the funds available for shareholder dividends.
Understanding REIT fees
Real estate investment trusts charge a management fee to pay for the salaries, expertise, and resources needed to manage the underlying asset portfolio. The combined cost of all these expenses culminates into the Total Expense ratio, which typically sits between 1% and 2% per year.
When first investing in REIT shares, there are no direct fees to pay beyond the usual broker commissions and charges. And even while holding shares in a REIT, management fees aren’t charged to shareholders but rather are built in as part of operating expenses. As such, the dividend yield of a REIT is an after-fee figure and does not need to be adjusted.
Top REITs to consider buying
Here are three REITs that can be bought on the London Stock Exchange in February 2026.
| Small-cap company | Market Cap | HQ | Description |
| LondonMetric Property (LSE:LMP) | £5.0bn | London, UK | Owns and manages a diversified portfolio of commercial and industrial properties. |
| British Land (LSE:BLND) | £4.2bn | London, UK | Owns and manages a diversified portfolio of London office campuses, retail and urban logistics properties. |
| Primary Health Properties (LSE:PHP) | £2.8bn | London, UK | Owns and manages a diversified portfolio of healthcare properties primarily leased to the NHS. |
LondonMetric Property
LondonMetric Property is one of the largest commercial landlords in the United Kingdom. The firm has historically specialised in logistical warehouses for the e-commerce industry with tenants like Amazon.
However, following the £1.9bn acquisition of LXi in early 2024, the company drastically expanded its portfolio to include other property types, including theme parks like Alton Towers. This business expansion also promoted the firm into the FTSE 100. And since then, management has only continued to execute further bolt-on acquisitions such as Highcroft Investments in May 2025 and Urban Logistics REIT in June 2025.
In total, the firm has a £7.4bn real estate portfolio spanning 670 properties covering logistical warehouses, convenience stores, leisure and entertainment, as well as health and education sectors. And using the steady and reliable cash flows generated from rent, management has consistently increased shareholder dividends for 10 consecutive years.
British Land
British Land is one of the oldest and largest REITs on the London Stock Exchange, with its roots dating all the way back to 1856. Today, the company owns and manages a diversified portfolio of London office campuses, retail parks, and urban logistic centres.
In 2021, management has been strategically pivoting the business towards retail parks, following the downturn in demand for office space since the rise of remote working. Retail parks also offer several structural advantages, including a broader and more resilient tenant mix spanning value retailers, discounters, and click-and-collect operators.
Skip ahead to 2026, and this strategic decision appears to have been quite intelligent, with retail park valuations rising rapidly alongside steady annual rental expansion of 3-5% per year.
However, it’s important to recognise that management hasn’t actually retreated from the office real estate sector. In fact, this remains a significant part of the group’s investment portfolio with management aiming to capture market share through best-in-class campus experiences to capitalise on the ‘return-to-office’ emerging trend.
Primary Health Properties
Primary Health Properties is the UK’s largest healthcare pure-play REIT, operating a portfolio of 1,142 properties covering GP surgeries, integrated primary care centres, pharmacies, and diagnostic hubs scattered across the UK and Ireland.
Its dominant presence was secured in September 2025 following its acquisition of Assura, which combined the UK’s foremost healthcare REITs into a single enterprise.
Critically, the vast majority of the firm’s £342m contracted rent roll is either paid directly or indirectly by the NHS. This means the bulk of its rental income is backed by the UK government, providing an exceptional degree of both revenue visibility and income security.
This government-backed income stream is a unique advantage that distinguishes Primary Health Properties from most commercial REITs, where tenant credit risk is a top concern. And it’s a big reason why the management has been able to increase dividends every year for the last 30 years.
However, it’s also important to recognise that this also means Primary Health Properties is consequently sensitive to NHS budget cuts – a risk that investors need to monitor carefully.
Are REITs right for you?
REITs in the UK can offer investors the opportunity to receive large and regular dividend payments. They can offer long-term capital appreciation, too, as the value of their properties increases over time.
That said, the steady rate at which asset valuations usually rise over a long time horizon means that REITs don’t tend to generate robust earnings growth like many other UK shares can.
REIT investing is a way for investors to invest in property without having to endure the hassle of buying or managing the assets. They also allow an individual the chance to avoid large transaction costs like stamp duty or real estate broker/estate agency fees. So, for investors who are just starting out, REITs can be an effective way to gain exposure to the property market.