Accelerating investment flows into alternative property sectors will result in a doubling in the size of the FTSE EPRA Nareit Developed Europe listed real estate index to €500 billion within the next five years, according to Kempen.
The research and advisory firm has made the prediction at the European Public Real Estate Association (EPRA) annual conference in Berlin, citing logistics, industrials, healthcare, hospitality and self-storage as the main drivers behind the growth of the European REIT market.
Dick Boer, head of real estate at Kempen Corporate Finance, says that the European speciality real estate sectors are growing at a much faster pace than traditional listed markets because they are a way to access some of the best real assets behind the great secular investment themes of our time — including ageing demographics and e-commerce.
Boer points out that, in the United States, alternative real estate sectors already represent about 40 percent of the REIT market, compared with only 10 percent in Europe. If the European companies match the market share of their U.S. peers, that would add 50 percent alone to the size of the European index.
Kempen has said that the potential for rapid capital accumulation in alternatives is illustrated by the residential market, which has expanded dramatically within just five years to create a major European listed real estate investment option in the sector.
Germany has emerged as the largest listed European real estate market, after overtaking the UK earlier this year. Boer says that the German listed model may act as a “growth nucleus” that can be exported to other European markets.
“European listed real estate is offering a rock-solid growth profile for investors if you look at the market’s fundamentals and from a cash-flow perspective,” says Boer.
“Average leverage is much lower than a few years ago and companies have locked in low interest rates for extended bond maturities through the
capital markets. Even if we get rising interest rates, that is not going to affect expanding areas like e-commerce, or the need for healthcare accommodation based on ageing demographics, and will probably indicate solid economic growth, which is only positive for real estate.”
