The European listed real estate sector has the potential to double in size to €600bn over the next five years, according to the European Public Real Estate Association (EPRA).

The doubling in size would be driven by banks looking to offload distressed property assets held on their books and private investors turn to REIT structures to realise the value of their investments.

Fraser Hughes, Head of Research at EPRA said: Europe’s three largest economies: Germany, France and the UK, had the greatest potential to increase the size of their domestic listed real estate sectors by €10bn to €50bn each, but there were also interesting situations emerging in Italy, Turkey, Spain and Ireland.

In Germany, the liquidity crisis in the €88bn open-ended property fund sector which has locked-up investors’ capital in the vehicles, is likely to increase pressure

for the expansion of a more liquid and transparent listed real estate sector, particularly by institutional investors, said Hughes. Of the 10 largest global property markets (with the exception of Italy at 0.6%), Germany has the lowest proportion of its underlying real estate held within the listed sector at only 1.5%.

In France, Europe’s largest quoted property sector by market capitalisation, expansion could be driven by more private companies floating their portfolios via the tax efficient SIIC structure. But Hughes noted that the French industry needed to do more to boost liquidity to attract investors, as the limited free float in real estate shares meant  that of the 80 quoted property companies in France, only 10 were included in the FTSE EPRA/NAREIT European real estate shares index.

In the UK, Europe’s deepest and most liquid listed property market, banks are slowly beginning to shift property assets held against distressed loans from their books, and the country’s REITs offer an efficient means of exiting these situations.

In Spain and Ireland, which have both experienced deep shocks to their financial systems, the utilisation of listed vehicles to help the market clearing mechanism shift distressed real estate stock into the more robust and transparent listed real estate sector is probably still some way off, but is likely to come into play in the future, said Hughes.

Italy’s government is sitting on extensive property holdings, which could be used to help reduce its large fiscal deficit, but Hughes believes that shortfalls in the Italian

REIT structure are limiting the efficient use of the equities market.

On Europe’s periphery, Turkey is perhaps a surprising candidate for lifting the continent’s listed real estate market capitalisation, but it has a robust REIT regime,

which includes residential property – in contrast to Germany, for example, and a dynamic strongly growing economy with a young active population.

“The value of Europe’s investable property stock is the largest in the world at around $9 trillion, but only a tiny fraction of that is held by listed real estate companies,” said Hughes.

“We are on the cusp of a period of unique opportunities over the next few years to substantially increase the European quoted property sector to the benefit of investors, governments, and private companies alike.”