The outlook for buy-to-let property looks quite precarious at present, in my view. Not only has UK house price growth (a key driver of buy-to-let returns) stalled due to economic uncertainty associated with Brexit, but the government has recently introduced a number of measures that have made the asset class far less attractive as a long-term investment.
That said, there are certain areas of the UK property market that do look attractive right now, to my mind. For example, the market for large, strategically-located warehouses is booming at the moment due to the growth of online shopping – for every extra £1bn in online spending, an additional 1.125m square feet of warehouse space is required. And I’ll point out that it’s possible to invest in this niche area of the real estate market, tax-free, through an ISA account. Here’s a look at how I’d invest.
Online shopping play
One of the best ways to get exposure to this exciting area of the real estate market is an investment in FTSE 250-listed real estate investment trust (REIT) Tritax Big Box (LSE: BBOX).
It owns a £4bn portfolio of advanced warehouses (known as ‘big boxes’) across the UK that are let out to some of the biggest names in retail such as Amazon, Tesco, B&Q and TK Maxx. These big boxes are modern, highly efficient, and strategically located, enabling retailers to hold goods for distribution to other parts of the supply chain or directly to consumers.
You can invest in BBOX shares, tax-free, through a Stocks and Shares ISA.
Capital growth potential
The investment case for Tritax looks compelling, in my opinion. Not only does the company operate in an industry that should benefit from a powerful long-term trend (the growth of e-commerce) but it also has a highly experienced management team with a strong track record of delivery.
Given the stock’s reasonable valuation (P/E ratio of 20.7) today, I see the potential for decent capital gains over time as the company grows in size and expands its portfolio. I’ll point out that analysts at Citigroup recently raised their price target for the stock to 186p – nearly 30% higher than the current share price.
Big dividends on offer
In addition, the stock has substantial income appeal. Since paying its first dividend in 2014, BBOX has notched up four consecutive dividend increases. For the year just passed, its dividend target is 6.85p per share, which at the current share price, equates to a healthy yield of 4.7%.
The company has said that, due to the quality of its portfolio and its customer base, it’s confident that it can continue to deliver secure and growing dividends to shareholders, as part of an attractive total return over the medium term, irrespective of conditions in the wider economy.
Overall, I see considerable investment appeal in Tritax Box Box and see it as a great (hassle-free) way to get exposure to a high-growth area of the UK property market. I hold the stock in my own ISA and I plan to hold it for the long term.
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Edward Sheldon owns shares in Tritax Big Box. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Tesco and 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.
Motley Fool UK 2020