European cities could fall behind when it comes to high quality urban development
Europe’s cities risk falling behind in the levels of high quality investment in urban development compared with North American and Asian regions, it is claimed.
This is because the listed real estate sector, the most efficient generator of jobs, economic growth and innovation in the urban environment, is much smaller and more fragmented in Europe, new research from the European Public Real Estate Association (EPRA) indicates.
‘Our research shows that listed real estate companies are leading the way in delivering investment and innovation into the built environment, customer focused practices, sustainable policies and providing long term stable retirement income for pension plans. But during a time of austerity and slashed government budgets, these advantages are being under utilised due to the relatively small size of the sector in Europe,’ said Gareth Lewis, finance director at EPRA.
The firm’s latest report, launched at the annual MIPIM property event in Cannes, France, examines the unique role of listed property as a platform for the European economy, providing the space and infrastructure needed for the European Union’s businesses, families, hospitals, schools and leisure activities.
The commercial property industry as a whole directly adds €285 billion to the EU’s economy, more than the automotive and telecommunication industries combined, and provides jobs for over four million people, as well as making up 6% of the investment assets of pension funds and insurers’ retirements plans.
Yet only 1.8% of the EU’s investible commercial real estate is held within the publicly quoted sector compared with 6.7% in North America and 6.1% in Asia.
EPRA’s research found that listed property companies are major players in the most substantial, ambitious, capital intensive and longest term projects, meeting the accommodation and infrastructure needs of European citizens. Relative to the size of
their property portfolios, listed property companies devote two to three times as much investment to the development of new buildings and the improvement of existing buildings than the rest of the real estate industry.
Examples include the Westfield Stratford City development in the UK which created 25,000 construction jobs, 18,000 permanent jobs, 300 shops, 70 restaurants, three hotels and 17 cinema screens.
There is also Unibail’s Le Nouveau Beaugrenelle urban regeneration project in Paris with 45,000 square meters of retail and office space which has created 1,000 retail jobs and Alstra’s Alte Post development in Hamburg which fully preserved the external façade of an historic building, while adding a six floor new development for a total of 9,800 square meters of retail and office space.
Listed property companies typically own and manage property portfolios on a substantial scale, with 32 of the Top 50 European shopping centres being in the sector. On average, in Europe, their portfolios each contain €3.27 billion of property, which is 5.5 times greater than the average real estate investor and eight times bigger than the average non listed real estate fund.
The average size of a property held by listed companies within EPRA’s European market index is almost 50% larger than the average asset in the database of real estate bench marker Investment Property Databank and for retail properties this is twice as big.
According to EPRA, the combination of accessibility and transparency allows listed property companies to attract capital from the widest range of investors, whether this is through debt or equity, and this is a critical attribute during difficult times in the economic cycle.
Capital raising in the listed property sector is more counter cyclical than in other real estate vehicles, as company management generally decide when they wish to raise money in the market and shareholders are able to buy or sell their investments at any time. This contrasts with many fund structures where, for example, fund managers were subject to a 'wall of money' at the height of the last real estate market boom and mass redemptions in the subsequent downturn.
Almost a fifth of the 127 closed ended real estate funds launched in Europe in 2007 have been wound up prematurely. In Germany, a third of open ended real estate funds, with around €30 billion in assets, are currently either in liquidation or are still closed for redemptions and facing an uncertain future. In contrast, there have been no insolvencies within the FTSE EPRA/NAREIT Developed Europe listed real estate index in the last 10 years.
‘The EPRA report highlights the unique role that listed property companies play in delivering, enhancing and operating the built environment and its important role in driving up standards in the broader property sector,’ said Philip Charls, chief executive officer of EPRA.
‘Most significantly, it identifies the huge opportunity that growth in this sector can play in building a stronger Europe and delivering smart, sustainable growth,’ he added.