The European Real Estate Forum – EREF

The importance of Real Estate

WHAT IS REAL ESTATE?
Property-related activities are highly diverse. Besides property management, they also involve planning, financing and construction activities, valuation, facilities management and consultation or brokerage services. The real estate sector has greater financial and economic value than other sectors such as the automotive industry or the telecommunication sector. It makes a major contribution to GDP in the European Union and provides prosperity and jobs.
According to recent data the commercial property contributed 2.8% of the total European economy in 2023. Real estate represents the majority of the existing real capital stock and is also particularly relevant because of its functions as provision of pension savings for old age and protection against inflation.
ROLE OF SECTOR IN ECONOMY
Real estate is one of the most important sectors in the economy. The affordability of real estate and rental prices as well as changes in those prices have a direct impact on the wealth of property owners and tenants and their consumer spending. Therefore, the development of rents and property prices is not only followed closely by private households that wish to change their housing situation or plan to invest, but also increasingly by the central banks.
Housing prices are a critical factor in consumer spending and play an important role for price developments. However, in recent years, the interest of central banks in real estate markets has gone beyond this direct effect on inflation. Nearly all major institutions, such as the European Central Bank, the OECD, the International Monetary Fund and the European Commission, are focused on the dynamics of real estate prices and the factors that influence them. Researchers and politicians increasingly consider that real estate markets play a decisive role in the transmission of monetary policy impulses. Key interest rate changes can have an intermediate effect on the economy via real estate prices and may influence or initiate economic upswings and downturns.
IMPACT ON ECONOMIC STABILITY
Housing prices are a critical factor in consumer spending and play an important role for price developments. However, in recent years, the interest of central banks in real estate markets has gone beyond this direct effect on inflation. Nearly all major institutions, such as the European Central Bank, the OECD, the International Monetary Fund and the European Commission, are focused on the dynamics of real estate prices and the factors that influence them. Researchers and politicians increasingly consider that real estate markets play a decisive role in the transmission of monetary policy impulses. Key interest rate changes can have an intermediate effect on the economy via real estate prices and may influence or initiate economic upswings and downturns.
IMPORTANCE FOR INSTITUTIONAL INVESTORS
Real estate investments play a major role for private and institutional investors. But just as the property industry has influence on the financial market, it also depends on it as highly capital-intensive sector. Access to loan capital is decisive in order to guarantee investments in real estate. The banking sector still is the most important credit provider for the property industry. However, alternative financing models including real estate debt products have become more important for project developers and investors as well as a source of secure returns that help pension funds and insurers meet their obligations to pensioners and policy holders.