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A second income from regional offices might be the most topical investment idea in Britain right now. Andy Burnham walks into Downing Street and the North of England is making the headlines.
If power really is heading out of London, one small-cap real estate investment trust (REIT) might be positioned directly in its path. It’s Regional REIT (LSE:RGL).
The portfolio
The company owns a £543m portfolio of offices deliberately located outside the M25. Its properties are located in places like Manchester, Glasgow, Leeds, and Birmingham.
The strategy is unorthodox – most property investors hunt for areas and industries where demand is strong. Regional REIT focuses on opportunities where supply is weak.
Industrial distribution centres are popular, but the problem is that everyone and their dog seems to be building them. By contrast, almost no new office space is being developed in some regional cities.
That makes quality assets highly valuable, even with modest demand. And there’s a chance a Burnham premiership could make that side of the equation even more favourable.
The UK now has a Prime Minister focused on devolution. If that shifts jobs and departments into regional cities, growing demand could be met with constrained supply.
I’m not saying it’s on the same scale as artificial intelligence (AI) driving memory prices off the charts. But the principle is the same and that could be powerful for rent prices.
The maths
Regional REIT targets an 8p per share dividend for 2026. At today’s 102p, that’s a 7.8% yield.
| Investment | Annual second income at 7.8% |
|---|---|
| £5,000 | £390 |
| £10,000 | £780 |
| £20,000 | £1,560 |
With an investment like this, investors need to think strategically. A £500 dividend allowance disappears quickly with high yields.
A higher-rate taxpayer loses 33.75% of anything over the first £500. Over time, that can be a lot – especially if the dividend goes up.
Inside a Stocks and Shares ISA, the investor keeps the full £780. And with something like Regional REIT, that matters more than it does for most stocks.
REITs have to distribute 90% of their taxable income. This doesn’t leave much for reinvestment, so the dividend is usually the bulk of the returns.
That means avoiding dividend tax is key – there’s not much coming from elsewhere, so retaining as much as possible is crucial.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The risk
In terms of risks, it’s best to focus on the dividend. The board has already reset it once — from a 10p target to 8p this year.
That was to fund refurbishments. And while those are investments in the business, a decade of quarterly payouts shows income is a priority but not a promise.
There are some reassuring details. Net loan-to-value is down to 39.4%, rent collection reached 98.5% in Q1, and £40.3m of cash sits on the balance sheet.
That’s all very positive. But if occupancy slips while hybrid working lingers, another cut is possible.
Investing, however, isn’t about finding risk-free opportunities. It’s about weighing the risk against a 7.8% starting yield that might get a boost in the near future.
Buying shares in Regional REIT as part of a diversified portfolio keeps a dividend disappointment from derailing the whole plan. And I think it’s certainly worth considering right now.
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Stephen Wright does not own shares in any of the companies mentioned.
This story originally appeared on Motley Fool
