EUROPE – The exposure of European pension funds to real estate could soar to 10% from an average of 6.5% “in the near future”, a study by US-based property consultancy CB Richard Ellis suggests.
The increase in real estate allocation would be worth at least €24bn and would be due to changes to pension systems that would shift more money to the second and third pillars, according to the study, called “Final Pension Crisis and the European Property Market”.
The research found that pension funds from the former EU-15 would receive “massive inflows“ as European governments promote second- and third-pillar pensions more heavily.
The real estate growth is also likely to be supported by pension funds‘ need for higher returns to fund growing liabilities.
For UK and German investors new opportunities in the property market will also come in the shape of Real Estate Investment Trusts (REITs), which will side traditional open-ended real estate funds next year.
REITs are publicly traded companies that buy, develop, manage and sell property for the benefit of shareholders.
However, the planned launch of REITs in Germany may be postponed due to the holding of a federal election on 18 September.
According to opinion polls, the opposition conservative CDU/CSU alliance is likely to win the election. The current Social Democrat-Green administration has made clear that it sees the 2006 deadline for the introduction of REITs as a priority. It is unclear how quickly a new Conservative-led government would act.
German financial lobby IFD estimates that once launched, REITs could spawn a €127bn market in Germany alone by 2010.