Whitepaper

Taking a global approach to real estate investing

Taking a global approach to real estate investing
Key takeaways
1 Diversification
1

Investing in global real estate offers historically low correlations to sole countries and alternative asset classes, making it a useful tool for diversification.

2 Accessibility
2

The depth and transparency of international markets make cross-border investment increasingly accessible. Investors can participate via funds or fund of funds to gain access with additional benefits of dedicated resources, less lead time and ability to deploy capital at scale.

3 Return profile
3

Global real estate can offer attractive returns derived from generally stable income streams, while simultaneously having the potential to lower portfolio volatility.

Why invest in global real estate?

Many investors are familiar with the appeal of holding real estate. With a generally low correlation to other asset classes, it can serve as an instant diversifier in a mixed-asset portfolio. Historically, real estate has delivered strong relative performance across multiple cycles compared to other asset classes, and its characteristic stable income, underpinned by long-term leases, makes it a compelling alternative to traditional fixed-income instruments.

In the past, real estate investors around the world have tended to be domestically focused, but increasingly many are now investing in non-domestic or even global real estate. However, assessing the global real estate market and the different means of gaining exposure through listed, unlisted, equity and debt vehicles can be a daunting task. Investors must assess various factors before making an allocation, including the impact of currency fluctuations and foreign tax laws. They must also assess their own internal capabilities for evaluating such an allocation.

In this whitepaper we examine four considerations for investing in global real estate, drawing on industry data and proprietary research to present the case global real estate investment. We consider:

  1. Ways to invest
    In recent years, the potential ways to invest in real estate have become more varied; while global public real estate markets have long been accessible to investors, it is only recently that pan-regional, open-ended core funds have become available globally, offering access to global unlisted real estate. There are multiple ways to access the real estate asset class, through equity and debt positions via listed and unlisted vehicles. In addition to choosing an investment vehicle, various real estate strategies exist across the risk-return spectrum that may warrant consideration depending on an investor’s goals and risk tolerance. The options include core, core plus, value-add and opportunistic approaches.
  2. The depth and liquidity benefits
    Expanding in to global real estate can open additional investment opportunities to access quality real estate investments. The investable universe in sophisticated, transparent markets is estimated at US$19.3 trillion.1 Apart from the United States, no other single country represents more than 10% of the total transparent global real estate universe. Data shows that global transaction activity has grown since 2010. Significantly, the increased transaction volume has not been isolated to any one region, indicating that there are liquid markets accessible across the globe.
  3. Long-term investment horizons
    Investors’ appetite for real estate is spurred in part by the asset class’s generally stable income component. On a total return basis, data suggests that for many, time in the market, rather than market timing may be the simpler, better way to achieve total portfolio benefits
  4. The role of global real estate within a mixed asset portfolio
    The historically low correlations between global real estate and various global traditional asset classes can be illustrated. Data shows that a global private real estate portfolio (represented as the Custom MSCI Global Quarterly Property Fund Index) produces very low correlations with global equities (0.24), global bonds (-0.16), and even global public real estate (0.23) suggesting a blend of public and private real estate can also create diversification benefits.2

There are a number of potential motivations for investing in real estate. But at its core, real estate is a local asset class, driven by local demographic and economic trends. The lack of synchronization in economic cycles globally reduces the correlation in real estate returns; thus, moving beyond one’s domestic market can offer significant diversification benefits and dampen volatility. For those investors seeking to expand beyond their home country, listed and unlisted global real estate can offer attractive returns and diversification benefits. 

Read the whitepaper

Footnotes

  • 1 Invesco Real Estate using data from Cushman & Wakefield Money into Property report and JLL Transparency Index as of May 2019.
  • 2 Invesco Real Estate based on data from MSCI, Bloomberg Barclays, FTSE EPRA/NAREIT and Macrobond as of May 2019.

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns. Property and land can be difficult to sell, so investors may not be able to sell such investments when they want to. The value of property is generally a matter of an independent valuer’s opinion and may not be realised.

Important information

  • The views and opinions expressed herein are those of Invesco Real Estate professionals based on current market conditions. They are not necessarily those of other Invesco professionals and are subject to change without notice.