Property investing is all about people. Because where they live, work and play has a direct bearing on the properties required to service their basic needs. This means the key to successful property investment is to recognise behavioural and demographic shifts early on, determine the types of property most likely to benefit, and capitalise on the new trends as they emerge.

Here, Matthew Norris, Investment Adviser of the VT Gravis UK Listed Property Fund, outlines four mega trends he has identified for the next generation of property investing.

The profile of the UK’s population is changing. Life expectancy has increased dramatically over the last few years, and this is having a huge impact on the properties required to service an aging population.

The over 85s is the fastest growing cohort in the UK and it's estimated that its number will double to 3.4m by 2046*. As people over 85 will, on average, visit their GP 13 times each year*, demand for the services they depend upon will naturally increase. That means more demand for GP surgeries and for care homes.

Increased investment in the sector is desperately needed and the private sector has stepped up to support efforts to improve the properties needed for the care of the elderly. Companies are helping provide modern purpose-built premises offering not just treatment rooms but also pharmacies, physiotherapists and social care on site.

Owning healthcare assets is also attractive for investors as they provide long-term, sustainable and growing rental income, often backed by secure government funding. Coupled with the demographic shifts that work to support the long-term case for investment in the healthcare sector, and the far-reaching social benefits, the investment case becomes increasingly compelling.

The specialist listed real estate investment trusts (REITs) investing in care homes and GP surgeries understand that ensuring the quality of the accommodation they provide will be crucial not only for residents, but also for the longevity of each of the assets they own.

*Source: Office for National Statistics

The digitalisation mega trend is the most powerful mega trend today. It is defining the opportunity in logistics real estate, all while continuing to chip away at the survival of the beleaguered bricks-and-mortar retail sector.

Roughly a quarter of what we buy, we buy online. That’s driven by the three Cs of cost, choice and convenience. When consumers shop, they want the lowest cost and, by shopping online, they get the highest level of price transparency. Online shopping also provides the widest choice and the highest level of convenience - their goods are delivered where they want, and when they want.

What that means is increasing demand for e-commerce fulfilment space, firstly, in the ‘big box’ warehouse sector, where e-tailers require large distribution hubs to store and transport vast amounts of stock around the country quickly and efficiently, and secondly in smaller, urban warehouses for ‘last mile’ distribution as the nation’s appetite for next day – or even same-day – delivery proliferates.

The meaningful amount of money involved in moving warehouses makes selecting the right site and planning for future growth a critical consideration for businesses. Equally, the level of investment required to automate systems and improve efficiency – such as the arrival of the ‘cobot’ – means many tenants are less likely to move and abandon the investment in the specialist fit out and technological improvements they have put in place.

That’s great news for investors in the UK because there are plenty of REITs you can invest in specialising in this area. For example, the REITs provide investors with access to Amazon's largest e-commerce fulfilment centres in Europe, and the distribution facilities for third party logistics companies like UPS and DHL. With the supply of land for new urban hubs increasingly restricted due to population growth in cities and the associated demand for residential development land, we are also witnessing the evolution of multi-storey warehouses such as the six-storey industrial development completed by the REIT SEGRO recently in north-west London.

Generation rent is another mega trend being driven by demographics. The number of 18-year-olds in the UK is expected to grow by about 16% by 2030* and, with more university age people in the UK, demand for purpose-built student accommodation is expected to increase. The good news here for investors is there are also REITs that own, operate and develop this next generation of accommodation for students.

A second element to generation rent is that renters are increasingly choosing to rent from professional landlords as opposed to amateur buy to let landlords. Far from an old Victorian house converted into rooms or flats, these developments are modern, purpose built, and affordable. Often offering gyms, cinemas, games rooms, concierge facilities, communal lounges and bike storage areas, apartments in these types of buildings are increasingly in demand from younger people who are mobile, have busy and active lifestyles, and want a home that supports them. And, once again you can get access to the next generation of assets via the listed market.

Home ownership is an aspiration that has stood unchallenged for decades, yet it is a relatively recent phenomenon. In the early 20th century, most of the UK’s population lived in rented accommodation with three-quarters of households classed as private renters in 1918. This number fell to just under a tenth of households by 1991**. The trend has reversed somewhat since the early 2000s, with the English Housing Survey finding that the number of people living in the private rented sector has increased by 124% since 2000***, as a failure to increase the quantity of housing in order to keep up with rising demand has led to residential property prices spiralling upwards.

**Source: Section 1 (publishing.service.gov.uk)

*** Source: 2022-23_EHS_Headline_Report.pdf (publishing.service.gov.uk)

**** Source: Unite Group plc FY2023 investor presentation 

With the urbanisation mega trend, we're talking about offices, and how both investors and occupiers are demanding greener premises. Whether it's Microsoft or Barclays, most companies now have their own net zero agenda, and that includes the office space they reside in. Green has become the new Prime.

The biggest threat facing humankind is clearly climate change and buildings have a large carbon footprint. With net zero targets on the horizon, new offices can no longer be the energy-guzzling behemoths of the past and are increasingly striving to be environmentally friendly. In the UK, the government has set the Minimum Energy Efficiency Standard, measured by an Energy Performance Certificate which sets out the energy efficiency of a property with a rating from A to E. The regulation requires all commercial buildings to be rated a minimum of B or higher by 2030.

If regulation dictates buildings need to be more energy efficient, tenants want to be in buildings that are environmentally friendly, and workers want to be in buildings that have a high level of amenities - places to store their bikes, places to have a shower, etc – that's good news for the landlords who produce, develop, and manage the next generation of green offices, with high EPC ratings. Those buildings that are lowly rated run the risk of becoming stranded assets - they become too expensive to upgrade to make them future proof and then become unacceptable to tenants or unlawful to let.

Find out more about the VT Gravis UK Listed Property Fund, here.

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