FCA listings shake-up is golden opportunity to revive UK’s REITs sector
Reinvigorating investment in real estate will ultimately accelerate growth, writes Antony Antoniou
Investors are breathing a collective sigh of relief at a major overhaul of the UK’s stock market listings rules which came into force on 29 July. Stripping back red tape will significantly reduce the costs of going public in London, creating a more favourable environment for Real Estate Investment Trusts (REITs), popular tax-efficient investment vehicles, and hopefully reviving our moribund capital markets.
REITs have suffered from lower liquidity, devalued assets and lower share prices on the back of high interest rates and inflation. This has driven consolidation in the sector, including this year’s mergers of Tritax Big Box and UK Commercial Property, and LXi and Londonmetric. The number of REIT IPOs has also nosedived: whereas eight REITs went public in 2017, there have been no new REIT listings in the last three years. The lack of new REITs has meant investors have missed out on opportunities to diversify their asset allocation, but investor appetite has not been forthcoming either. In June, Special Opportunities REIT, which was earmarked to be London’s biggest IPO of 2024, cancelled the float after it struggled to raise sufficient funds. The sector was also hit by the collapse of the beleaguered Home REIT in July.
Merging the premium and standard segments into a single listing category for equity shares in commercial companies will simplify the listings framework and make the UK a more attractive destination for businesses to go public. More REITs choosing to list could also spur greater professionalisation as listed businesses are subject to greater regulatory scrutiny on matters including sustainability and diversity of boards.
By speeding up the route to public markets, REITs will also no longer be as dependent on private capital. Private equity has enjoyed a close relationship with the banking sector over several years now, albeit marked by friction, and takes much of its equity from the banking system. However, in the higher interest rate environment, private equity funds have had to tighten their purse strings. This shift, coinciding with listings reform, means we could see a window of opportunity open for smaller businesses to go public, bringing in a whole new profile of investor and allowing for greater diversification. While riskier, the rewards for investing in these smaller businesses could be greater for investors, helping inspire an entrepreneurial spirit which had begun to wane as private equity dried up.
More broadly, the new listings reforms will go a long way in revitalising the UK’s capital markets. Compared to our friends across the pond, the UK remains a cheap domestic market and much of its appeal lies in its undervalued assets. Removing fiscal and regulatory barriers to listing will attract more exciting businesses to float in London and will create a much more appealing proposition for retail investors. Admittedly not every business will succeed, but normalising failure will foster greater entrepreneurialism, something we should be welcoming with open arms.
Reinvigorating investment in both real estate and other sectors will mean that our capital markets will at last reflect the risk appetite that’s so desperately needed to accelerate growth. It is clear that healthier capital markets in the UK will ultimately boost wider economic growth and will also help cure the country’s economic malaise. The economy should be buoyed by higher liquidity, leading to increased productivity and employment opportunities, freeing the UK from economic stagnation. Whether this will trigger “Big Bang 2.0” remains to be seen, but there could be exciting times ahead.