Accelerating investment flows into alternative listed real estate sectors are set to be the driving force behind a predicted doubling of the FTSE EPRA/NAREIT Developed Europe index over the next five years to €500bn, according to research from banking firm Kempen.
Presenting his firm’s conclusions at the annual conference of the European Public Real Estate Association (EPRA) in Berlin on Wednesday, Dick Boer, head of real estate at Kempen Corporate Finance, said: “Even based on very conservative assumptions, Kempen believes that we could easily see a doubling in the size of the market benchmark index within five years.”
He said the European speciality real estate sectors — also including hospitality, healthcare and self-storage — were growing at a much faster pace than traditional listed markets such as offices and retail.
This was because the speciality sectors “represented 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”, he said.
In the US, alternative sectors already represented about 40% of the REIT market, Boer said, compared with 10% in Europe.
If the European companies grew to match the market share of US peers, this would add 50% to the size of the European index, Kempen said.
It said the dramatic expansion seen in the residential market had illustrated the potential for rapid capital accumulation in alternatives.
The market cap of the listed residential sector has increased nearly 16 times between the end of 2010 and the end of June this year in the EPRA benchmark, to become the index’s single largest sector, according to EPRA figures.
The overall market cap of the FTSE EPRA/NAREIT Developed Europe index has more than doubled in the last 7.5 years to €258bn at the end of June 2018 from €112bn at the end of 2010, the data showed.
A major factor behind the expansion of the European listed residential sector was German companies, Boer said, a string of which had gone public after organic growth and acquisitions.
He also said that residential markets were now on the verge of a new phase of internationalisation and that the German listed model could act as a ‘growth nucleus’ to be exported to other European markets.
This was already happening with sector leader Vonovia’s acquisitions in Austria and Sweden, he said.