The investment case for buy-to-let property does not look so hot right now. With Brexit uncertainty and rising interest rates, UK property prices could come under pressure in the years ahead. Furthermore, with rent increases not keeping up with house price appreciation, rental income yields are now low. Add in higher stamp duty for buy-to-let properties and a sharp increase in regulation, and the outlook for landlords does not look as promising as it has in the past.
However, there are other niche areas of the UK property market that appear to have brighter prospects, including property that is set to benefit from the online shopping boom and real estate that is set to benefit from the UK’s thriving start-up scene. And the good news is that it’s possible to invest in this kind of real estate with as little as around £500, through real estate investment trusts (REITs) listed on the London Stock Exchange.
Here’s a look at two REITs I believe have great potential as long-term property investments.
Tritax Big Box
FTSE 250-listed Tritax Big Box (LSE: BBOX) is a trust dedicated to investing in very large logistics facilities, known as big boxes. These are storage facilities that companies such as Amazon, Argos and John Lewis use to hold finished goods before distributing the goods to consumers. The REIT owns a portfolio of big boxes that is well diversified by size, geography and tenant and they are typically fully-let on long leases to blue-chip tenants.
One key feature of BBOX is that it offers a very healthy yield right now. With the company planning to pay out a dividend of 6.7p per share to investors this year, the prospective yield on offer is 4.7%. That’s a higher yield than many buy-to-let properties currently offer.
With the popularity of online shopping likely to continue rising in the years ahead due to technological advances, BBOX looks to be a great way to play the boom in online shopping from a property-investment perspective, in my opinion.
Another REIT that I believe looks well placed for future growth is Workspace Group (LSE: WKP), which is a property company that offers flexible office, co-working and meeting room solutions for fast-growing, early-stage companies in London. Currently, the group has 69 locations across London and is home to 4,000 companies, yet I think this could just be the start of a long-term growth story as there are likely to be many more start-ups and freelance workers needing office space in the years ahead.
Workspace’s business model provides a steady stream of income for the group and the majority of this income is paid out to investors in the form of dividends. This year, it is expected to pay out approximately 32.4p per share, equating to a yield of 3.2%, however, it’s worth noting that the dividend payout has been increased significantly in recent years (five-year growth: 180%) and looks set for further growth going forward, so WKP could turn out to be a cash cow for shareholders.
Of course, as a London-focused property company that is exposed to start-ups, the investment case for WKP isn’t without risk. Yet from a long-term investing perspective, I see a great deal of appeal here, given the way the employment landscape is evolving.
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Edward Sheldon owns shares in Tritax Big Box REIT. The Motley Fool UK has recommended Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.