Third, the challenge and opportunity posed by sustainability is one that is continuing to shape the sector and forward-looking returns.
Operating costs for tenants are going up, and the regulatory scrutiny being applied to buildings and landlords is only going in one direction: net zero. This is driving a bifurcation in the market, where owners of older, less energy-efficient real estate will both struggle to attract tenants and be hit with large capex bills to meet an ever-rising regulatory bar.
REITs that are already at the leading edge of this debate will enjoy the opposite; better tenants on better terms, cost efficiencies and easier access to capital.
This is where real estate investors should be investing in order to capture the best opportunities during 2023.
As we apply this approach to selecting and investing in specific listed REITs, we focus on companies active in structural growth sectors with high-credit tenants, and with management teams that can demonstrate a clear and genuine focus on embedding sustainability into their long-term strategies.
This can include, for example, companies prioritising net-zero retrofit of logistics assets, or REITs that are deploying energy efficiency measures across their portfolios.
Mark Brennan is co-manager of the Foresight UK Infrastructure Income Fund
