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The metaphor of a political earthquake is much over-used these days but it does indicate the uncertainty of the consequences we are facing after the Brexit vote. EPRA is naturally disappointed with the outcome of the United Kingdom’s referendum. The impact of the vote to leave the European Union on real estate investment markets will become clearer in the months ahead, and in the meantime we should brace ourselves for a long period of volatility and uncertainty.
At the same time I can reassure all our members, that this vote does not affect our association’s core mission. We will continue to push for the growth of the European listed real estate industry as a whole, and to promote the REIT model, which has been very successful in the UK. We believe that the strong growth seen in European REIT markets will continue and gather pace.

Philip Charls

Brexit – what next?

There are a range of views on the exact impact of the ‘leave’ vote for real estate but most experts agree that the vote will result at least in a short-term market drop. We may see lower occupier demand as businesses take more time to consider investment decisions. On the other side we could argue that in any scenario there will always be opportunities. With a likely fall in real estate values, we may see a rising interest from sovereign wealth funds which will view new opportunities to enter the market. It will take months before we fully understand whether changes to the UK’s relationship with Europe will be marginal or substantial. One thing we know for sure is the procedural perspective. During exit negotiations, EU Treaties continue to apply, meaning that for the next two years the UK will still be subject to EU law. After Article 50 is triggered and the two-year negotiation period ends, potential options range from no agreement to a “Norway plus” deal with full access to the EU single market (Norway is not an EU member but part of the European Economic Area). Any negotiated agreement will need to be adopted by a qualified majority of 72% of the remaining 27 Member States. Another thing we already know is that the departure of UK representatives from the Parliament and the Council will change the EU economic policy. The focus on cutting EU red tape has long been seen as a “British disease” by the Commission and certain Member States. EU politics will unfortunately tend to become less rational and science-based without the UK. It is also a wake-up call to the EU institutions to better communicate the advantages of the membership and put more focus on being “big on big things and small on small things”.

Listed real estate could double in five years

The volume of listed European real estate could double in the next five years, said Philip Charls in an interview with the Belgian financial newspaper De Tijd during the REALTY trade fair in Brussels. With an annual yield of 8.3% over the past 15 years, listed real estate performed significantly better than general equities or other investments (see graph). This success story also applies to Belgium. During the International Investors’ Day at REALTY, Laurent Ternisien, EPRA Senior Advisor, told the seminar that Belgian REITs had enjoyed strong growth in the past few years and that the average dividend yield for the sector was 6.6% in the first quarter of 2016, compared with 3.9% for the EPRA Developed Europe Index.

EPRA, BPF and Indian officials talk REITs

Last week EPRA, together with the British Property Federation (BPF), met with the Securities and Exchange Board of India (SEBI) in London to discuss the country’s nascent REIT market. Indian government officials were in the UK to meet investors and market participants with the aim of understanding market developments in REITs and infrastructure as they stimulate interest and make their offer as attractive as possible. 2004-2008 saw activity in real estate and infrastructure pick up in India however capital constraints and excess leverage led to a recent slowdown. In September 2014, after several years of consultation, the Indian government introduced REIT and Infrastructure Investment Trust legislation. EPRA and the BPF highlighted the importance of education and marketing to increase knowledge of the offer to investors. If you wish to know more about the Indian REIT legislation, please contact us.

Asia week

Playing an active role in the international expansion of the listed real estate sector, at the end of June EPRA organised the sixth so-called ‘Asia Week’ roadshow: four cities and four countries in only four days. A unique opportunity to bring our member companies and their CEOs (Vonovia, Colonial, Citycon, Cofinimmo, Green REIT and JLL) to the doorstep of Asian largest investors, including sovereign wealth funds, insurers and banks. In the post-meeting survey both property companies and investors highlighted the strong added value of the roadshow – ranging from the seniority of the management, the educational dimension and the opportunities it provided – and expressed strong impressive support for continuing the initiative. EPRA expects that the big know-how of European property companies will lead in the future to more cross-continental investments. At the same time, Asian investors are actively looking at European REITs for long-term stable return and dividend yields especially amid current negative interest rate environment.
EPRA is the European Public Real Estate Association 

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European Public Real Estate Association (EPRA) · Square de Meeûs 23 · Brussels 1000 · Belgium