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:
- 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.
- 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.
- 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
- 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