Funds hold 30% of commercial property
More than 30% of Portugal’s commercial real estate is in the hands of investment funds and “concrete assets” are the main investments.
The conclusion has been drawn by the European Central Bank (ECB) which points to the need for greater regulation on the sector as these financial asset instruments have mushroomed in the Euro Zone which could affect the health of the financial market in the region.
The (high) presence of real estate investment funds (REIFS) in the Euro Zone’s commercial market was confirmed by ECB specialists.
The Net Asset Value (NAV) of REIFS has more than trippled between the fourth quarter of 2012 and the fourth quarter of 2022, from €323 thousand million to €1.04 Trillion according to Pierce Daly, Lennart Dekker, Seán O´Sullivan, Ellen Ryan and Michael Willow who undersigned the ECB study.
The European Central Bank (ECB) has now called for greater regulatory oversight of property funds after highlighting the liquidity risks these increasingly popular strategies pose.
The central bank said real estate investment funds (REIFS) had grown significantly in the past decade but remained exposed to significant liquidity risks, which could affect the stability of commercial real estate markets throughout Europe.
The ECB is now calling for policies to be amended to reflect REIFs’ vulnerabilities, meaning potentially more regulation to be introduced at a national level.
“Portugal is not one of the countries with the greatest exposure unlike Germany, the Netherlands, France and Italy, however REIFS in real estate assets represent 30% of the value of its total commercial real estate, this value includes exposure to real estate held through financial instruments, namely bonds and shares” state the authors of the study.
However, the Portuguese market’s exposure to financial assets is minimal, with interest mainly in concrete assets which are more focused on the internal market — unlike almost any other country in the Euro Zone. In fact, investment in Portuguese physical assets (logistics parks, retail shopping centres, hotels and offices) in 2022 by funds was the greatest in the Euro Zone.
Photo – German Council for Foreign Relations