EUROPE - Germany, the largest real estate market in Europe, could contribute the greatest share of a potential doubling in the market capitalisation of the European listed real estate sector over the next five years.

According to Philip Charls, chief executive of the European Public Real Estate Association (EPRA), the country is showing strong emerging trends and is currently attracting high interest from institutional investors such as pension funds.

Speaking at the EPRA conference, Charls said: "Germany's listed real estate sector has huge potential for growth as investors increasingly come to realise the attractiveness of the listed model.

"Real estate stocks offer international investors a liquid and transparent way of accessing German property and are a very competitive alternative to the open-ended property fund model that has served the market in Germany for 50 years."

EPRA estimates the total size of the real estate investment market in Germany to reach more than €1trn, being slightly bigger than the UK market.

In comparison, the listed real estate sector in Germany records only €20bn-25bn in market capitalisation, which represents 1.5% of the total market.

The low exposure to the listed real estate sector is mainly due to the relatively low proportion of the German population that own equities - less than 10% - compared with other European countries such as the UK and the Netherlands, where this percentage reaches 25-35%.

It is also due to the recent introduction of real estate investment trusts (REITs), Charls said.

He added: "The listed real estate sector in the country is underscored, but this might change in the future, and listed properties or REITs might be used as a new way of investments.

"This move will be directly linked to the fact a large portion of institutional investors investing in German open-ended property funds (GEOFs) could stop investing in this sector due to the introduction of a minimum two-year holding period."

According to EPRA, the German listed property market has shown signs of growth, with German real estate firms using the stock market to list and raise capital, accelerating prime office, initiating IPOs in the last year and raising more than €1bn in equity capital.

EPRA also estimates that around €9bn in commercial real estate mortgage-backed securities (CMBS) are due in 2014-15 and could boost the domestic market capitalisation of REITs, as investors are looking for an exit route from CMBS commitments.

Topics