Time is right for German listed sector evolution, says EPRA

The lack of a large listed real estate sector in Germany means Europe's largest economy is only benefitting to a limited extent from the strong investment flows and professional services that listed companies can bring to the urban landscape, the European Public Real Estate Association (EPRA) argues.

'Germany has by far the smallest listed real estate sector of any major economy globally, due to historical structural obstacles to the market’s growth,' said Philip Charls, CEO of EPRA. 'Yet you only have to look across the border to France to see what can be achieved in terms of more jobs and investment in less than ten years, if these companies are provided with the right conditions to thrive.'

According to Charls, the strong long-term dividend flows listed property firms generate are also a good match for pension fund liabilities and so can form an important and reliable part of retirement income in old age.

In contrast to other major economies, real estate investment in Germany has focused on the open-ended property fund model, largely distributed by local banks, for over 50 years. Economy State Secretary Bernhard Heitzer told a recent conference of the RDM Association of Property Professionals and Caretakers (Ring Deutscher Makler) that the government had decided to retract a proposal to prohibit the creation of further open-ended property funds after the industry complained that this could cut many small investors out of the property market.

Whilst this is true, Epra noted that it is also the lack of a large developed listed real estate sector in Germany, bringing with it the transparency, liquidity, and lower costs that real estate stocks offer, that has curtailed investors’ options.

'EPRA believes that the time is now right in the evolution of the German market for the expansion of the listed sector to bring the significant economic benefits of these companies to Germany, in a similar way to the role they play in every other major developed country worldwide,' the public real estate body said.

Investing in property stocks is subject to minimal fees compared with the multi-layered costs, including up-front, share and property transaction fees, of many open-ended funds. Listed German property companies have raised just under EUR 3.0 bn in equity since 2007, from both domestic and international investors, and this capital has flowed almost exclusively into Germany supporting local economies and creating jobs. In contrast, the open-ended property funds have a far smaller proportion of their invested assets in Germany (around 35%).

At a time when the building stock of German cities requires intense investment to allow the country to meet its energy sustainability targets, the listed sector can act as an efficient conduit to channel capital into the renovation of houses, offices, and retail premises and support the adoption of new environmental technologies. Olivier Elamine, EPRA board member and CEO of German listed real estate company alstria Office REIT-AG said: 'There is around EUR 20 bn sitting frozen in open-ended property funds which could be put to work in the German economy should the government offer their investors the option of converting these assets into listed property companies.'

He added: 'This opportunity should be seized, not only to safeguard existing investors’ interests, but as a potential catalyst for kick-starting a large dynamic publicly quoted property sector at the same time as giving a boost to the economy and helping small investors, pension funds and insurers.'