Europe had been slow to get on board with real estate investment trusts (REITs), but that has changed with a record surge in fundraising which has provided a lift to the commercial property market.
In the first eight months of 2014, 10 REITs in Spain, Ireland, the United Kingdom and other countries have raised US $4.2 billion, which is a record level according to Dealogic. In all of 2013, there were 10 offerings with proceeds of US $1.9 billion.
According to Dealogic, 2014 is on track to break the previous record set in 2006. At that time, 26 REIT IPOs (initial public offerings) raised a total of US $55.1 billion.
The new offerings are coming at a time when the Eurozone is recovering from an economic downturn that was partly triggered by real-estate bubbles in a number of European cities. Several European banks are still struggling due to their large portfolios of distressed loans and some countries still have a number of unfinished developments dotting the landscape.
The European boom has a much different flavour than the surge in new listings that followed the commercial real estate collapse of the early 1990s.
At that time most of the IPOs were done by existing real estate companies with over-leveraged portfolios. They used the new infusion of cash to prop up their balance sheets.
In the current situation, most of the companies that have gone public in the past 12 months don’t own large portfolios of property.
The investors are using the IPOs to raise money to take advantage of the real estate slumps in countries like Ireland, Italy and Spain to buy properties at attractive prices.
REIT IPOs first made an appearance in Ireland last year, after the government introduced new legislation.
New players who have entered the picture include Green REIT, which has focused its attention on acquiring Dublin office buildings, and Hibernia REIT, which has bought loan portfolios as well as office properties.
Spain has seen the most IPOs in Europe since the REIT boom started. The country has four listings this year, and there are more in progress.
The European commercial property market continued to put up strong numbers in the first six months of this year with France and Germany leading the way, according to a study conducted by CBRE.
An upswing in investment in the two countries, which added up to €7.3 billion in France and €7 billion in Germany have pushed acquisitions to €46 billion in the second quarter. Europe gained a total of €84 billion in the first half of the year.
Buyers in the French market were a combination of domestic and Middle Eastern investors. The majority of properties (69 per cent) were bought by domestic buyers. In Germany, most of the properties were acquired by investors from France, the United Kingdom, and the United States.
US investors were in the limelight in terms of investment activities across Europe, and bought assets across 15 European countries.
Paris was the most popular destination, with American investors buying close to €1.9 billion worth of assets.
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