Leveraging listed real estate: A cornerstone for Europe’s Capital Markets Union [Promoted content]

With the European Union entering a new mandate, the discussion surrounding how to fund the EU’s many political priorities takes centre stage. At the heart of this debate lies the Capital Markets Union (CMU), which aims to create deeper and more integrated capital markets across European mMember States.  

Tobias Steinmann is the Director of Public Affairs at the European Public Real Estate Association (EPRA).

European policymakers have long echoed the necessity of cultivating more cohesive capital markets across the EU, particularly now as governments grapple with increasing budgetary constraints. Factors including escalating interest rates, the need for green financing (amounting to between €500 and €750 billion annually until 2040), and a pressing demand for increased defence funding, all underline a need for Europe to deepen the integration of its capital markets. 

Recent discussions and Enrico Letta’s “Much more than a market” report, which offers proposals to advance the CMU and outlines the role savings and investments can play in facilitating the flow of capital within the bloc, are encouraging. Letta’s proposals include a Long-Term Savings Product with automatic enrolment across the EU, using tax incentives offered by Member States; improvements to the Pan-European Personal Pension Product to enable easier cross-border investment solutions for citizens; the establishment of a European Long-Term Fund; and the creation of a European Green Guarantee facility aimed at bolstering bank lending for green energy initiatives. All of which could finance some of the EU’s current and future priorities, including the so-called “Twin”, digital and green transitions. 

Amidst these discussions, listed real estate is often overlooked, yet stands out as a potent asset class… Listed real estate, comprising real estate investment trusts (REITs) and publicly traded real estate companies, represents a cornerstone of the CMU’s vision and potential. Its value extends far beyond bricks and mortar, offering a conduit for capital deployment, economic growth, and financial security for investors across the EU’s diverse economic landscape. 

Democratizing access to listed real estate 

Listed real estate democratizes access to real estate investment, enabling citizens to hold shares in a diverse portfolio of buildings , granting stable and high returns to investors through direct channels (stock markets) as well as their pension plans. 

With financial uncertainties across Europe, particularly around retirement income, listed real estate offers a resilient investment choice, promising stability, growth, and positive social and environmental impacts. It provides some of the crucial infrastructure Europe needs – from healthcare facilities to greener housing – ensuring a secure and more sustainable future for millions. It can help tackle housing shortages and raise funding for Renovation Wave housing projects, creating a more resilient and competitive Europe.  

It is therefore vital that EU policymakers understand the pivotal role listed real estate can play in advancing the CMU and prioritise several key measures. Firstly, streamlining the listing process within the EU will make it more attractive for companies to go public or remain listed rather than opting for private status. Additionally, policymakers should enable pension products to have increased exposure to listed real estate, recognising that their returns hinge on the underlying investment’s ability to generate revenue. Furthermore, fostering the adoption of appropriate tax incentives is essential to encourage investment in capital markets and, through listed real estate, in housing and renovation projects. 

Thirteen European Member States have already recognised the societal benefits of incentivising real estate investment through public markets and have introduced REIT legislation in their jurisdiction. The European Public Real Estate Association (EPRA) urges the European Commission to pursue mutual recognition of these frameworks to establish a unified European REIT market accessible to citizens in all 27 member states. This initiative would not only consolidate considerable funds and investments into a single European market but also foster its expansion by granting more EU citizens the chance to invest in REITs. 

Enhancing the wider regulatory environment 

EPRA welcomes the sentiments of the Letta report and the opportunity to bolster Europe’s financial resilience and competitiveness through the CMU. However, this must align with wider regulatory convergence, not least Europe’s green transition, to ensure that these two objectives reinforce each other. 

In terms of real estate, not only should the entire sustainable finance framework better encompass the specificities of real estate investment, but the European Commission should seek to harmonise energy performance metrics among Member States to create a single European real estate market. 

There’s also an urgent need to establish clear, sector-specific standards that not only reflect the industry’s sustainability efforts accurately but also incorporate relevant indicators to enhance the measurement and reporting of progress in the energy transition. This holds significant importance, especially knowing that the building sector is responsible for about 40% of Europe’s energy consumption and that constant efforts must be made to facilitate the green transition of the building stock. 

As the voice of the listed real estate sector, EPRA and its membership call on the next European Commission to put in place a regulatory framework which will enable more retail participation in the listed real estate market, while also facilitating cross-border investment to allow better portfolio diversification to help address the lack of supply of housing across Europe. This, alongside clear European-wide standards to support the green transition of real estate, will ensure the long-term future of millions of people and contribute to a greener, more sustainable planet.