FINANCE: EPRA 2014: Europe’s listed sector could boost its share of the industry’s global market capitalisation by nearly a third in the three years to end of 2015.
European Public Real Estate Association chief executive Philip Charls said strong institutional flows, a buoyant IPO market and a structural change in how institutional investors manage their property portfolio could lift Europe’s share to 18% of the market capitalisation of the global REIT market.
The market capitalisation of the FTSE EPRA/NAREIT Developed Europe Index of listed property companies was €145bn at the end of August, or 15.65% of the global index.
Europe’s global market share increased last year by nearly two percentage points from August 2012, just prior to EPRA’s annual conference in Berlin.
Charls said: “Europe is back. EPRA predicted that the European listed real estate sector would turn around and was poised for a ‘REIT renaissance’ from a low point two years ago, when it was steadily declining relative to the industry in North America and Asia.
“That has come to pass as investors have bet on the real estate recovery story and we’ve seen the strongest European property IPO market in 20 years.
“These factors have combined with new ‘state of the art’ REIT regimes in Spain, Ireland, and most recently in Italy. I now hope to be able to announce that we’re well on the way to gaining a further 2% of global market share at next year’s EPRA annual conference.”
EPRA said that robust global equity markets and investors’ hunt for yield from strong dividend income-producing REITs have played a key role in rising property stocks worldwide.
In addition, a change in investment strategy within institutional real estate portfolios suggests that a fundamental shift is also occurring towards greater listed real estate allocations, particularly in Europe.
Academic research is increasingly demonstrating that institutional investors can generate consistently superior returns by integrating listed real estate into their property investment allocations alongside non-listed real estate funds, compared with portfolios without a blended approach.
EPRA-sponsored research shows that a 70/30 blended portfolio of non-listed real estate funds and property stocks – the allocation targeted by the UK’s giant NEST pension fund – generated a 13.6% outperformance in returns over the June 1998 to June 2013 period compared with holding non-listed funds alone.
For the decade to June 2013, a blended portfolio achieved a 38.7% outperformance, while for a five-year period the difference was more than five-fold in favour, again, of the blended approach, the research revealed.
The surge of both institutional and retail investment flows into listed real estate can also be seen in the jump in global assets in exchange traded funds linked to benchmark FTSE EPRA/NAREIT real estate indices.
At the end of July 2014, global assets under management in these equity tracker funds stood at $10bn, a 30% rise over $8.4bn at the same point a year previously.
Charls concluded: “EPRA has been steadily increasing its research, government lobbying and investor outreach capabilities in Europe and further afield, culminating in the opening of offices in London and Hong Kong – for the fast-growing Asian investor market – last year.
“This work to present the positive attributes of the industry and spur its expansion is for the long-term and may not always be visible to the market; but it is very effective in helping to reap real benefits for companies, as the European listed sector continues along its growth path.”
bridget.oconnell@estatesgazette.com
