“Recent DWP lease renewals such as Theatre Buildings achieve a 5% rental reversion and we expect reversion to be at least on par with current UK CPI, which is 3.5% as of Nov 2025,” states Osman.
In the analyst’s opinion, the successful regear will help to justify cap rate compression, which can increase asset values and have a knock-on effect on gearing.
“We think DWP has limited relocation optionality in the Tier 2/3 UK cities due to the lack of comparable alternatives. With UK unemployment reaching 5.1% in the three months to October 2025, the highest level since early 2021, the government will be under significant pressure to expand employment services infrastructure. We believe Elite UK REIT is well-positioned to secure favourable lease renewals with DWP,” the analyst adds.
Progress on Lindsay House repositioning
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Meanwhile, the analyst notes that the strip-out works at Lindsay House have commenced, including the removal of carpet, ceiling tiles, internal partitions, lighting, and ducting. Around £15m - £17m capex is expected for the repurposing of the asset to PBSA.
Osman points out that Lindsay House is located near two universities - the University of Abertay and the University of Dundee and the supply of PBSA in Dundee is tight, with assets close to Lindsay House being limited to PBSAs such as Peterson Hall (204 rooms), Seabraes (411 rooms), IQ Parker House Dundee (147 rooms), Lyon Street Terrace (126 rooms), Meadowside Court (69 rooms), and Keiller Court (128 rooms).
“We note that for the academic year 23/24, the number of international students at the University of Dundee and Abertay University fell 27% and 11% y-o-y respectively. However, given the structural undersupply of PBSA relative to the current international student population (4620 PBSA beds vs 73,915 population as of 23/24), Lindsay House may still benefit from constrained supply dynamics,” Osman comments.
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Acquisition plans
Osman mentions that Elite UK REIT is evaluating possible acquisition opportunities, with the sponsor pipeline currently the most visible option.
“The sponsor owns two assets that may be of interest to the REIT. The first asset will be Queensway House, located at East Kilbride, which is a 217,674 sq ft campus office fully leased to HMRC with WALE of six years, and the second being 150 Broomielaw, located at Glasgow, which is a 96,759 sq ft Grade A office fully let to Scottish Enterprise with WALE of five years,” says Osman.
From the analyst’s perspective, based on previous acquisitions, Elite UK REIT has shown a preference for assets with existing UK-government leases at modest bolt-on deal sizes of £5m - £15m, and clear strategic rationale centred on lease regearing (e.g., removal of break options or WALE extension), alongside efforts to diversify tenant exposure from DWP.
Finally, Osman sees various upside potential for Elite UK REIT, which includes higher-than-expected rental escalation post-lease regearing and Lindsay House PBSA delivering an above market yield, which the current estimated yield on cost is 7%.
As at 9.30am, units in Elite UK REIT are trading up 0.5 pence, or 1.39% at 36.5 pence.
