FTSE Russell and the European Public Real Estate Association (EPRA) have worked together to publish a research paper that discusses in detail the recent trends and developments in the European LRE sector and compares features of LRE vs unlisted real estate investments. Key observations from their research on features and trends in European listed real estate include:
- Property investment—traditionally the most familiar asset class for investors—is accessed through a variety of channels, ranging from direct investment to leveraged derivatives tied to specific asset values. In this report, we focus on listed equity for European real estate.
- Looking at the long-term returns and given the same underlying assets, the listed sector is an effective proxy for direct property investment, but with added transparency, diversification, unmatched liquidity and a lower hurdle to global access. LRE allows investors to optimize by adapting sector tilts, currency exposure and geographical weights, all in a cost-effective way.
- The listed sector is influenced by a wider stakeholder group compared to other real estate vehicles. Through its public disclosure requirements, investors and analysts can scrutinize all aspects at a company level, ranging from management efficiency, transaction multiples to capital strategy.
- In some jurisdictions, dedicated listed property companies, focused on owning and operating property across a range of sectors, may opt for Real Estate Investment Trust (REIT) status, which typically provides tax advantages and commits the company to paying out a larger share of its income in dividends. Some European real estate companies (referred to as non-REITs) operate without formally adopting the REIT-status as the income pay-out may be more flexible, or because of other restrictions REIT legislation may impose on REITs, or due to the absence of REIT legislation in the country.
- COVID-19 is expected to have varying impacts on the different sector of commercial property. For example, the pandemic accelerated some trends, such as online shopping, further depressing retail real estate. It may also create opportunities, where real estate valuations have decreased temporarily or real estate may be repurposed, creating value for investors.
- The European listed sector has evolved significantly since the last property cycle, which started after the Global Financial Crisis, with the introduction of new sectors, REIT regimes and deleveraging. Property investments through the listed market represent a cost-efficient and dynamic method of investing in commercial real estates, traditionally only accessible with high entry capital hurdle.