GLOBAL - The centre of gravity for REITs has shifted away from the US towards Asia and Europe, according to a report by Ernst & Young.
Despite a 25% drop in the number of US REITs, market capitalisation for global REITs was US$764bn (€520bn) for the year ending June 2007, up 25% over the previous year.
The US remains the largest REIT market, with 195 currently in operation - down from 253 in 2006 - but the number of REITs now in existence outside the US has increased to 253, up from 198 in 2006.
This overall increase was largely the result of the introduction of new REITs regimes. That said, the report's authors believe higher credit costs could instigate the same delisting trend that has contributed to REITs' decline in the US, albeit "on a lesser scale".
Ernst & Young Netherlands partner Helmar Klink played down the public-to-private trend, although he foresaw cross-border mergers.
"There's a definite desire in the marketplace for real estate funds. If they're taken off the market, they'll be replaced - perhaps with specialised or regional funds," said Klink.
According to the report, Singapore - which doubled the number of S-REITS last year - ranked first among REIT markets in 2006, returning 72.9 % in 2007, up from 1.7% in 2006. South Korea returned 43 %, followed by Japan with 42 %, France with 38 % and South Africa with 37 %. The US and the UK posted the lowest returns of 12% and 11% respectively.
Although it acknowledged investors are treating UK REITs "with caution…as the new kid on the REIT block", the report claimed their introduction "is set to transform the European region into a world force in REITs, rivalling North America in scale and activity".
Peter Beckett, tax director in Ernst & Young's London real estate group, told IPE Real Estate UK REIT returns had suffered from "froth", with hype factored into early REIT share prices, and from fund managers cashing them in for liquidity after investors redeemed their investments in open-ended funds.
Investor education in 2008 will result in "a much more stable REIT market" in the UK, the report claimed. However, Beckett said the likely impact of the credit squeeze on REITs was as yet unclear.
The report estimates REITs globally own real estate valued at USD1.27trn.