REIT ETF

REIT ETF invests in REITs, which are tax transparent real estate investment vehicles.

What is a REIT?

A REIT is a legal vehicle specifically designed for investing in real estate. REITs were first introduced in the United States in 1960 in order to encourage individual investors to invest in real estate through equities or bonds. Before, typically only high net worth investors could afford to invest in real estate as it involved buying physical buildings.

According to the European Real Estate Association (EPRA), there are 924 REITs as of March 2022, up from 791 in June 2017. In most regions, the number of REITs has increased in recent years as more countries have established REIT regimes. A notable exception has been North America, where mergers and acquisitions have resulted in a smaller number of larger REITs. Often, new REITs are created as a result of large real estate developers, such as Blackstone, floating part of their assets on a public stock exchanges.

The following table indicates per country when a REIT regime has been introduced:

Source: NAREIT, https://www.reit.com/sites/default/files/2022-02/2022-Global-REIT-Brochure.pdf

Roughly, there are two types of REIT ETFs:

• Sector specific REIT ETFs
• Broad REIT ETFs

Within the sector specific REIT ETFs, we distinguish the following:

• Residential REIT ETF
• Office REIT ETF
• Industrials REIT ETF
• Hotel REIT ETF
• Healthcare REIT ETF
• Retail REIT ETF

In contrast to the US, there are no pure REIT ETFs available in Europe to our knowledge. European real estate ETFs all invest part of their portfolio invested in non-REIT real estate stocks because Europe’s fragmented nature means there is no homogenous REIT regime. This means there are fewer REITs and a pure REIT ETF would exclude some of the most interesting real estate stocks.

For instance, the VanEck Global Real Estate ETF is 73% invested in REITs, with the balance of 27% in straightforward real estate stocks¹. Additionally, investing outside the REIT universe aids diversification of risk. Examples of non-REIT stocks in the VanEck Global Real Estate ETF are:

• Vonovia SE, a large German residential real estate company. Under German law, residential real estate companies cannot qualify as REITs.
• Mitsubishi Estate Co. Ltd., a diversified Japanese real estate company which also has a large real estate development business.
• Castellum AB, a Swedish real estate investment company. There is no REIT regime in Sweden.

¹ Data as of 10 June 2022.