REIT Capitalization Up 25%, But Challenges Ahead
The total market capitalization of publicly-listed Real Estate Investment Trusts around the world rose 25% to $764 billion in the year to June 30 , according to a new study from Ernst & Young.
While the market as a whole has grown, some regions have fared better than others, E&Y finds in its “REIT Market Review 2007,” which covers publicly-listed REIT markets in four regions and 15 countries, including growth trends in market size and depth.
The report says that, as a result of the fallout from the subprime residential mortgage market collapse, REITs looking to refinance in the coming year will likely face tighter covenants and increased financing costs — both of which will have a negative impact on real estate values and REIT returns.
Key Findings of the study:
- Asia has been instrumental in the growth of the global REIT market with the region taking a top three place for one-year total returns.
- The US REIT market has contracted due to increased privatization, and experienced lower returns and higher volatility than the majority of other markets.
- New REIT regimes in the UK and Turkey have increased the size of the European market, which leads other regions for three year total returns.
- Debt levels are rising in REITs fueled by low interest rate environments.
Essentially, we’ve seen a dramatic shift in REIT formation away from North America and toward Asia and Europe in the last 12 months.
In addition to regional and country data, the report includes:
-Detailed commentary on factors impacting REIT performance globally
-A breakdown of REIT classes by country and region
-The impact of different financial reporting standards on our ability to compare REIT performance
-A summary of the main tax and regulatory changes in the last year
The complete study “Global REIT Report: REIT Market Review 2007” can be downloaded at no charge from the E&Y website.
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