Industry Updates

Enthusiasm for real estate ETFs builds in Europe

REIT ETFs in Europe have seen almost €500m inflows so far this year

Jamie Gordon

a construction site with cranes

Investors in Europe have joined the US in pouring billions into real estate ETFs as disruption to supply chains and released demand for property see sale and rental prices soar. 

Illustrating this trend is the $325m VanEck Vectors Global Real Estate UCITS ETF (TRET), which saw $97m inflows in the week to 25 June and $167m new assets in the last month, according to data from ETFLogic.

Added to this, almost €500m have been channelled into ETFs targeting real estate investment trusts (REITs) so far this year in Europe, according to Bloomberg Intelligence.

This, Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said is investors expressing their support for the recovery trade and continuing the hunt for yield.

At present, pent-up demand for housing is being demonstrated by many developed economies posting record one-year increases in property valuations. This includes the UK, which just cited its steepest 12-month jump in house prices in 17 years due to a combination of released demand and demand being brought forward by the government’s stamp duty holiday initiative.

Similarly, commercial real estate has seen a return-to-life, with offices and restaurants tentatively returning to normality.

Psarofagis also noted REIT ETFs have been a good way for investors to capitalise on of logistical issues during the recovery. Not only is warehouse square footage now hot property, but supply chain concerns mean the materials needed to service heightened demand – via increased housing supply – remain near all-time highs which in turn maintains upward pressure on property valuations.

Combined, these inputs and faith that central banks will allow countries’ economic recoveries to run hot until year-end, have seen real estate ETFs become a source of alpha for investors so far in 2021. 

Evidencing this, TRET has returned 21.4% so far this year – far exceeding the 11.7% growth posted by the MSCI ACWI index during the same period.

Though impressive, the real estate industry’s heady bounce back is not impervious to factors which might slow the pace of the world’s economic recoveries. 

Higher interest rates and any hiccup in the recovery (such as new COVID-19 variants) I think pose the biggest challenges,” Psarofagis noted.

Also worth considering is the upturn in the US market has preceded that of most other developed countries, according to a recent global equities outlook from Gina Martin Adams, chief equity strategist at Bloomberg Intelligence. 

US real estate ETFs are set for their best month of inflows since at least 2014, Bloomberg said, with the BlackRock's iShares US Real Estate ETF (IYR) already having seen $2.5bn inflows, as at 25 June. 

However, the report by Adams puts US stocks at the bottom of Bloomberg Intelligence’s equity scorecard for the second half of 2021.

Meanwhile, European equities sit at the top of the rankings with economic and valuations momentum on their side – which could mean a Europe-focused property rally is on the cards during the remainder of the year.

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