In this second of two articles exploring UK REITS, Matthew Norris, manager of the TM Gravis UK Listed Property Fund, looks at the FCA’s Thematic Review of Retirement Income, the two areas highlighted as key concerns and how UK REITs can help.
The FCA’s Thematic Review of Retirement Income (TR24/1) highlighted two key concerns.
First, many client portfolios do not materially change when investors move from accumulation into decumulation. Assets that may have been suitable during wealth-building years are often left unchanged despite the fact that investors now require reliable and sustainable income.
Second, advisers face the challenge of generating income that can remain dependable for 20 years or longer while preserving capital where possible.
These are not minor issues. Once clients begin withdrawing money from portfolios, the order in which investment returns occur becomes critically important.
UK REITs can help address both concerns through what might be described as the “Three Ss” of retirement investing: sustainability, sequencing risk and suitability.
1. Sustainability of income
Not only must REIT pay out 90% of rental income but those dividends are supported by contractual rental income from real assets. Many commercial leases are long‑dated, often incorporating upward‑only rent reviews or explicit indexation to inflation. While the UK market has evolved toward shorter average lease lengths in some sectors, contractual cash flows remain more predictable than in many other asset classes.
Unlike many equity dividends, which are determined by management discretion and earnings cycles, REIT distributions are backed also by tenants paying rent on buildings that support essential economic activity. In addition, most UK REITs hold portfolios that are diversified by tenant, geography and sector. This reduces reliance on any single income source and helps mitigate the impact of tenant‑specific issues.
Many leading UK REITs have demonstrated years, and in some cases decades, of dividend growth through multiple economic cycles.
2. Sequencing risk mitigation
Many decumulation portfolios rely primarily on selling capital units to generate withdrawals.
This works well when markets rise persistently. It becomes problematic when withdrawals coincide with sharp falls in asset prices.
The advantage of REITs is that a meaningful proportion of total return comes naturally through cash distributions. Rather than relying exclusively on selling assets during periods of market stress, investors can draw natural income generated by the underlying properties.
That does not eliminate sequencing risk entirely, but it can materially reduce reliance on forced capital sales at depressed valuations.
3. Suitability for retirement portfolios
Investors in retirement often need a combination of:
- Regular income
- Inflation protection
- Diversification
- Liquidity
- Capital preservation
Well-managed UK REITs can provide all five.
This makes them particularly relevant for advisers constructing portfolios designed to support clients throughout a retirement that may span two decades or more.
Why allocate to REITs within a multi-asset portfolio?
The case for REITs extends beyond income and another compelling argument is the diversification on offer.
Over long periods, listed property has demonstrated relatively low correlation with both equities and bonds. Our analysis shows correlation of the TM Gravis UK Listed Property strategy of 0.43 to global equities and 0.45 to gilts over a five year time horizon*.
During periods when markets become obsessed with fashionable themes, whether dot-com stocks in 1999, cryptocurrencies, gold or, more recently, artificial intelligence, valuations can become detached from fundamentals.
History suggests that when speculative excess unwinds, investors often rediscover assets whose returns are driven by tangible cash flows rather than market narratives. Following the dot-com peak, for example, the NASDAQ fell by over 60%, while UK property shares rose by a similar magnitude**.
Rental income is not dependent on investor enthusiasm. It is generated through legally binding lease agreements with tenants.
Why UK REITs deserve renewed attention
A decade of global investing conditioned UK investors to look overseas, particularly toward the United States.
However, 2025 provided a useful reminder that currency movements matter. Because for UK investors, returns generated abroad can be significantly affected by fluctuations in sterling.
Commercial property, on the other hand, does not move across borders. A GP surgery in Birmingham, a logistics warehouse in Manchester or a student accommodation block in Bristol continues generating rent in Sterling regardless of currency volatility. This removes a key source of uncertainty for UK-based investors.
Meanwhile, sophisticated investors continue to identify value in UK listed property. Private equity firms, pension funds and institutional investors have been active acquirers of UK listed real estate companies, attracted by discounts to underlying asset values.
Exposure to next-generation real estate matters
A common mistake is to think of REITs as synonymous with struggling shopping centres and ageing offices. But not all property sectors are equal. Today’s strongest REIT opportunities are often found in sectors supported by powerful structural trends.
Examples include:
- Healthcare property
- Logistics and distribution
- Build-to-rent housing
- Student accommodation
- Self-storage
- Data centre related infrastructure
These sectors benefit from themes such as ageing populations, digitalisation, ‘generation rent’ and urbanisation.
Conversely, investors should remain cautious toward structurally challenged and oversupplied parts of the market where rental growth and occupancy remain under pressure.
Valuation matters
Today, one of the most compelling aspects of UK REITs is valuation. UK listed property companies continue to trade at substantial discounts to net asset value, with sector discounts significantly wider than long-term averages.
However, advisers should avoid becoming overly fixated on NAV alone. For long-term investors, the more important question may be: how quickly is the income stream growing?
The market may sometimes misprice the value of a portfolio. But if rental income continues growing, dividend distributions continue rising and tenant demand remains healthy, long-term returns can still be delivered.
As investors have repeatedly seen across market cycles, share prices eventually reconnect with fundamental income generation.
Looking beyond NAV
One of the most valuable conversations advisers can have with clients is around the distinction between share prices and underlying income.
Investors often become concerned when they see headlines about discounts to NAV or volatility in listed markets. However, most retirees are not spending NAV. They are spending income.
If the underlying portfolio owns high-quality assets with strong tenants, rising rents and growing cash flows, short-term market dislocations can create opportunities rather than threats.
Educating clients to focus on the durability and growth of income rather than daily market prices can help improve behavioural outcomes and reinforce the role that listed real estate can play within diversified retirement portfolios.
Retirement’s different mindset
The transition from accumulation to decumulation requires a different mindset. The FCA’s TR24/1 review highlighted the need for retirement portfolios that can deliver reliable income for decades whilst reducing reliance on selling capital at unfavourable moments.
UK REITs are not a solution to every retirement challenge. However, their combination of contractual income, inflation-linked growth potential, diversification benefits and attractive valuations means they deserve serious consideration within modern decumulation portfolios.
In a market increasingly driven by narratives and momentum, REITs offer something refreshingly simple: ownership of real assets generating real cash flows. For long-term investors seeking sustainable retirement income, that may prove more valuable than ever.
* Source: Bloomberg LP. Correlation data for the Fund and indexes (MSCI World and FTSE Actuaries UK Conventional Gilts All Stocks) are calculated using weekly returns from 30.04.21 to 30.04.26.
** Source: Gravis, EPRA, rebased to 31 August 1999.
No information contained in this article should be construed as providing financial, investment or other professional advice and should not be considered as a recommendation, invitation, or inducement to subscribe for, dispose of or purchase any such securities. Professional investors only. Capital at risk. Past performance is not a guide to future performance.
The first article looking at ‘back to basics’ of UK REITS can be found on our Technical Zone: Technical Zone Archive – Professional Paraplanner
Main image: buildings, property, commercial, leohoho-vO1jSPqZplA-unsplash
