Capital inflows to drive European property companies forward

By Giovanni Curatolo, Research and Indexes Analyst

A year characterized by a slow recovery in economic growth, geopolitical uncertainty, and easing monetary policy, is coming to an end. Listed property companies have historically benefitted from easing interest cycles, outperforming the other equity sectors on average by 6,300 bps after the first cut and by 6,900 bps after the last cut by the ECB [Exhibit 1]. This has boosted market sentiment towards the sector, driving capital raisings to a three-year high, reaching pre-pandemic levels and doubling year over year.

Exhibit 1

Source: EPRA Research

Offering an attractive entry point, with an average discount to NAV of -24.59% [here], and strong operating fundamentals, European property companies have managed to raise a record EUR 22.6 billion throughout the year. Of that, EUR 17.8 billion has been raised via bonds (34% of which were green, up 1.4x compared to 2023, in which only EUR 3,2 billion had been raised via green instruments) [Exhibit 2]. Geographically, the UK took the lead over the old continent, with a total capital raised of EUR 5.3 billion, followed by Sweden with EUR 4.7 billion, and Germany with EUR 4.4 billion raised. Notably, in the past two years, Sweden has represented more than 20% of the total amount raised by the constituents of the FEN Developed Europe Index, highlighting the increasing strength of and confidence in the Nordic markets.

Exhibit 2

Source: EPRA LTV Monitor

Lower borrowing costs and expectations for further ECB cuts in 2025 have helped European property companies refinance part of the debt maturing over the next four years, which is estimated to be around 32%[3] of the total debt outstanding in Europe as of December 2024 [here]. The average cost of the bonds maturing in the next 4 years is estimated to be 3.1%, while the average cost of the bonds issued in 2024 stands at ca. 4%, implying a spread of ca. 95 bps [exhibit 3]. This difference is likely to narrow as further cuts are expected from European central banks in 2025, hereby potentially easing the pressure related to refinancing the debt outstanding for the sector. It is worth noting that, although refinancing remains a key theme within capital raised by the sector’s participants, improved operational metrics and debt profiles have led property companies not only to grow their existing businesses but also to venture into new ones. In 2024, of the EUR 17.7 billion in bonds issued by European property companies, around 40%[4] is estimated to be allocated to funding both capex and expansion of property portfolios.

Exhibit 3

Source: EPRA Research

Although lower in relative terms when compared to recent years, capital raised via equity financing increased more than 30% from last year’s figure. Amongst the largest equity raises, Segro (SGRO LN) raised approximately EUR 1 billion to finance new growth opportunities in new and existing businesses, Merlin (MRL SM) raised EUR 920.8 million to fund the expansion of its data centre business, and Unite Group (UTG LN) raised ca. EUR 530 million to finance its development pipeline and acquire new assets to further grow its student housing portfolio (together accounting for more than 50% of the total equity raised).

The combination of easing monetary policy and improving operations places the European listed real estate sector in a strong position to attract more capital inflows in 2025. EPRA is set to monitor the evolution of the listed real estate sector in Europe in relation to the current macroeconomic environment in an upcoming research report that will be released during the first days of the new year.