Recent political changes and elections on the horizon are hanging over a market recovery for the listed real estate industry, delegates heard at the annual conference of the European Public Real Estate Association (EPRA) in Berlin this week.

The political landscape in Europe, which has seen electoral success for right-wing parties, is more concerning than the state of economy, said CEO Dominique Moerenhout. He pointed to an unstable political situation in France, the rise of centre and far-right parties in Germany, and national elections coming up in the US and elsewhere.

According to Rolf Buch, CEO of Vonovia, the large listed German residential specialist, the positive election results of the far-right Alternative for Germany (AfD) in the states of Thuringia and Saxony was “a signal to the politicians that something has to change”.

He added: “We don’t know what populists will do with the rental regulation, but I am sure there won’t be a populist party in the next German government.”

Next September, after the elections, it is likely to see Germany shifting to centre-right, moving away from social democrats and greens-led government, to a CDU-led government coalition, that will be a lot more pro-business and lot better for companies, said Andrew Coombs, CEO of Sirius Real Estate.

The work of the next EU Commission will likely revolve around competitiveness, as the report published by former head of the European Cental Bank Mario Draghi shows, with a “desire for change” of an over-regulated environment, he added. 

EPRA has started coalition with 70 real estate associations to draft policy recommendations for the next EU Commission, the CEO said. 

“In the UK, the victory of the Labour Party seems to be very welcomed by [our] members, because they want to tackle housing shortage. They have launched a housing taskforce and this is very good,” Moerenhout said. 

Interest rates finally on the decline

Meanwhile, listed real estate markets will need to adjust to lower interest rates, which according to Ian Shepherdson, founder and chief economist of Pantheon Macroeconomics, will persist because economic growth will be low.

Interest rates are coming down, with the first cuts of the European Central Bank (ECB) “definitely helping the [real estate] industry”, valuations “bottoming”, and operation performance of EPRA’s members “very good”, Moerenhout said.

“Our members are back on the capital markets,” he said. “Year to date, our members have placed around €18bn of new capital. Capital markets are definitely back.”

EPRA chairman Pere Vinolas Serra said that, with inflation almost under control and real interest rates falling, the case for real estate investments is coming back “very strongly” again.

Rita-Rose Gagné, CEO of Hammerson, added: “When we look at the overall economic statistics on our portfolio, we dig into the specific economy of our catchment areas in key cities. We are in a low-growth environment, but there are growth spots in these mature markets. We benefitted from a major structure change from the retail sector.”

Attracting new sources of capital

A major talking point was the need to channel capital and pension assets into the market. Buch said the management board of EPRA believes that the European real estate sector needs to become bigger and more liquid, as it is still too small for generalist investors.

“We have to tell societies that investments in real estate are crucial,” he added.  

EPRA has started a “major outreach” programme aimed at generalist investors to complement capital flows coming from specialists investors, pension funds and insurance companies, CEO Moerenhout said. 

For the new EPRA chairman Jean-Pierre Hanin, the listed real estate industry is well placed for riding opportunities given liquidity and access to capital, and improving cost of capital, and address challenges for the society, for example climate risks. 

“Investors expects a pragmatic approach that incorporate climates risks into business plans,” he said. 

Push back on sustainability 

Sustainability, with an emphasis on climate change, decarbonisation and energy transition, is on top of the agenda for EPRA, with 61% of the members that achieved sustainability best practices recommendations. 

However, in recent years, EPRA has observed a “push back or fatigue” from real estate investors on topics relating to sustainability, coming mostly from the US, which could lead to a recalibration of the definition of sustainably, Moerenhout said. 

Buch shared this pessimism on reaching the CO2 reduction targets. “We [in Germany] have started Iate and therefore it will not happen,” but reduction targets will achieved by Vonovia, he said.

“I am convinced that the technology will help us achieving net-zero targets, provided we urgently get on and draw road maps that are realistic today and can be accelerated,” Croombs said.

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