German listed sector at €114bn hot on the heels of UK

2017 is proving to be another major growth year for the German listed real estate sector, which has been growing in leaps and bounds since being viewed as the EPRA 'problem child' just a few years ago.

The total market capitalisation of German listed property companies has surged 26% over last year to €73bn. Assets under management rose likewise by 26% to €114bn – a mere €12bn behind the UK sector - still maintaining its lead as the largest in Europe.

A new report presented last week by the ZIA German Property Association and Barkow Consulting at a conference in Frankfurt highlights the role played by the enormous expansion of the listed residential sector in boosting the German listed sector. The German listed sector now makes up 23% of European listed property, up from 10% in 2013, and is now the undisputed second-biggest market in the EPRA-Index, surpassing both France and the Netherlands combined. Three of the ten largest European property companies are now German.

Peter Barkow of Barkow Consulting left little doubt that the Brexit referendum had led to the growing significance of Germany's weighting, apart from the negative effect of a weaker British currency.

The German listed sector has seen three new arrivals since the last study in 2016 – Aroundtown, Consus and Noratis. After several years of consolidation, there were no major IPOs. The first half of the year also saw a fairly low level of new capital issuance, at about €1.5bn. Hence the rise in market capitalisation is largely due to the rising level of stock prices enjoyed by most listed companies.

Also notable, said Barkow and ZIA's Sabine Georgi, was the arrival of corporate real estate onto the scene, in the form of Aroundtown's recent listing.

The buoyant German residential housing market has hugely inflated the size of the listed German residential players, which now represent 76% of all the listed real estate assets under management. In particular, the free float in the sector has soared from €1.5bn in 2008 to a massive €56bn this year – a function of the enormous interest from foreign institutional investors in gaining exposure to the German residential sector, which has lent wings to nearly all the big listed players.

Veterans of the German market – including REFIRE, which wrote extensively on the subject in the early days of German REITs – will remember the public opposition to including residential housing in the nascent German REIT sector. As a 'social good' too important to be left to the vagaries of the capitalistic stock market, REITs were condemned to exclude all housing from their business models. Few foresaw the subsequent development of the residential listed sector.