At the 8th annual European Public Real Estate Association (EPRA) conference, held on 6-7 September in Athens, Greece, JPMorgan has presented research highlighting the growth potential for tax efficient listed Real Estate Investment Trusts (REITs) in Europe. The research, entitled "European REIT development", forecasts that €140 billion of new equity will be added to the European capital markets in the long term.
Harm Meijer, JPMorgan real estate equities analyst and co-author of the research with Tim Leckie, said, "The key driving forces behind this forecasted expansion are the introduction of REIT legislation in the major European markets and the greater availability of investment grade property from private property funds, corporates and governments. On top of this, solid economic fundamentals and increasing investor allocations to real estate will further support this growth."
The second edition of EPRA's Global REIT Survey was also presented at the conference. The survey provides a comprehensive comparison of major REIT regimes around the world.
EPRA research director Fraser Hughes, said, "The survey builds significantly on the first edition which was published in 2004, and now covers a total of 31 countries in Europe, Asia, Africa and the Americas. The survey stands to become the reference point for Global REIT information. We can see an increasing adoption of REIT legislation in Europe, and this, in combination with the JPMorgan research points to significant growth in the sector in the future."
In Europe, REITs were first introduced in France in 2003, followed by the UK and Germany in 2007. According to EPRA, Europe accounts for just 22.6% of the global REIT market capitalization estimated at €754 billion, despite having 42.3% of the world's underlying assets in the direct commercial property market. The small size of European listed real estate assets compared to total property stocks (4.9%) suggests great potential for growth.
JPMorgan's research forecasts that from 2009, European non-listed property funds' termination will accelerate when a total of €26.9 billion in gross assets will become available for potential listing on the equity markets. European corporate real estate portfolios are expected to be another source of REITs.
The research also suggests that REIT introduction will increase retail investors' ownership in UK and European REITs. Institutional allocations are also expected to increase sharply with asset allocation models pointing to an ideal of 15% of investment portfolios in real estate, compared with a current average of just 6% for European pension funds. This represents a potential minimum of 24 billion a year in new capital flows.