To be sure, we could have said almost the same thing in 2012 or 2009 – aside from the ‘securities’ part.
However, for investors who cannot hold ‘bricks and mortar’ in a portfolio, or who prefer the liquidity of listed exposure, that suggestion would have been essentially useless.
Today, after major advances in Europe’s listed real estate market, things are very different. For the first time, having a genuinely global listed real estate portfolio is a realistic prospect.
We continue to believe there are compelling opportunities in the North American real estate investment trust (REIT) market, which has a dividend yield of 4.1%1 as of 31 August 2015.
Caution
In our view, select areas in Asia look attractive, too. And within Europe, currently we would also caution against being underweight the UK, where real estate fundamentals remain strong, and where we are seeing a number of quality companies that we believe are attractive for listed real estate portfolios throughout an economic cycle.
Nonetheless, we believe the UK real estate cycle as a whole should moderate in mid-2016, with the listed market’s prices anticipating this trend some months before, despite continued rental growth.
Catching up
In contrast, Continental European valuations have a lot of catching up to do and, in contrast to the US and UK, seem unlikely at this stage to see any headwinds from imminent monetary policy tightening.
While the FTSE EPRA/NAREIT UK Index provided a dividend yield of just 2.6% at the end of August, the Developed Europe ex-UK Index yielded 3.4%.
What makes this especially noteworthy, however, is the nature of the opportunity in this cycle compared with previous ones.
A world transformed
Europe as a whole was a bit of a non-starter just a few years ago, with barely any companies to invest in outside the UK and Unibail Rodamco in France. This world is almost unrecognisable now.
The value opportunity in Continental European bricks and mortar three or four years ago led to demand for more listed opportunities, which in turn spurred a wave of initial public offerings (IPOs).
Since 2013, there have been 45 European real estate company IPOs, worth a total of more than €13bn (£9.7bn, $14.9bn).
Twenty-eight of those, representing an IPO value of €10bn, were Continental European listings.
Of the 16 €300m-plus IPOs over that time, seven were seen in Spain and Ireland, including Merlin Properties, which now owns more than 900 commercial real estate assets on the Iberian peninsula, worth €3.4bn.
