Real Estate Insights The continuing uncertainty of property investment markets – an outlook for the UK in 2023

PurposeThe aim of this Real Estate Insight is to comment upon the outlook for real estate investment in the United Kingdom (UK) at the beginning of 2023 in light of global inflation brought about by the pent-up post-pandemic demand push for goods and services and the exacerbation of the Ukraine/Russia conflict.Design/methodology/approachThis Real Estate Insight will comment upon changes in the investor's view of the UK economy and the relative attractiveness of the different property sectors and the shift in thinking post-pandemic.FindingsThis paper will consider a number of scenarios and possibilities flowing from the current uncertainties in the property market and the wider economy.Practical implicationsAs with all property investment, the value and performance of the property assets is interlinked with the use and demand of different property types. Understanding the supply and demand drivers provides investors with a reasoned conjecture of how the property market may perform going forward.Originality/valueThis is a review of the UK market in relation to post-COVID-19 changes to supply and demand at both an operational and investment level.

Analysis of Prospective Scenarios: A Study on Educational REITS in Brazil

Among the problems caused by the pandemic of the new coronavirus (SARS-COV-2), besides the irreparable loss of loved ones and the damage to global health caused by the disease, the restrictions imposed and the economic losses incurred by them stood out. Given the sudden changes imposed on the routine of society and companies, many businesses went bankrupt, while the other survivors needed to adapt quickly, resulting in a routine based on home office, ecommerce and distance learning. The educational sector was strongly affected by these restrictions, as well as the assets linked to it, as highlighted by the cumulative annual drop of 22% of the IFIX (index of Real Estate Investment Funds), witnessed by investors during the arrival and spread of the pandemic in Brazilian territory. Thus, the work was based on the prospective analysis of scenarios through the Momentum method, producing three possible future scenarios for the recovery of the educational REITs (Pessimistic, Optimistic, and Trend), with the help of three financial planning specialists. At the end of this study, it was possible to configure the scenarios: "The recovery of education REITs" as optimistic scenario, "Challenges of education REITs" as trend scenario, and "The crisis of education REITs" as Pessimistic scenario.

Spillover and connectedness among G7 real estate investment trusts: The effects of investor sentiment and global factors

This paper examines the dynamic spillover interconnectedness of G7 Real Estate Investment Trusts (REITs) markets. We use the spillover index of Diebold and Yilmaz (2012), the time-varying parameters vector-autoregression (TVP-VAR) model, and the quantile regression approach. The result show that REITs network connectedness is dynamic and experiences an abrupt increase in the first wave of COVID-19 outbreak (2020Q1). We also observe a substantial abrupt decrease in connectedness during the success of vaccination programs (end 2021). The connectedness among assets is much stronger during COVID-19 than before. The REITs of Japan and Italy are net receivers of spillover and those of US and UK are net transmitters of spillovers before and during COVID-19. Conversely, the REIT of Canada and Germany (France) switches from net receivers (contributors) of spillovers before the pandemic to net contributors (receivers) during the COVID-19. Finally, we show that News Sentiment index, Geopolitical Risk index, Economic Policy Uncertainty index, US Treasury yield, and Stock Volatility index influence the spillover magnitude across quantiles. © 2023 Elsevier Inc.

Information and volatility linkages between real estate, equity, bond and money markets in Australia

PurposeThe purpose of this paper is to examine information and volatility linkages among real estate, equity, bond and money markets in Australia.Design/methodology/approachA novel rational expectations framework of financial contagion (Kodres and Pritsker, 2002), along with a combination of robust statistical methods including simple and dynamic correlations and generalized impulse response (Fereidouni et al., 2014) have been employed using data covering three dynamic pre-pandemic economic cycles, namely, global financial crisis (GFC) period, pre-pandemic housing boom and pre-pandemic housing downturn from 2008 (February) to 2019 (December).FindingsResults reveal information linkages across real estate, equity, bond and money markets through correlations in return and volatilities of these series. Finding indicates that the three financial markets (equity, bond and money markets) are interdependent and integrated through information and volatility linkages during the GFC period and pre-pandemic housing downturn period. Financial markets have stronger associations with real estate market during pre-pandemic housing boom. The findings contribute to the general notion that the performances of three financial markets are closely related to the "boom” phase of the real estate cycle.Originality/valueThis research provides an extension of existing literature regarding the information and volatility contagion of the expanded set of core investment markets in Australia. The findings could assist household buyers and investors in designing strategic investment portfolios/hedging strategies and minimizing asset specific risks through diversification over short-term and long-term. In addition, results could support the maintenance, growth and development of a combination of competitive balanced investment markets including real estate, equity, bond and money markets in post-pandemic economy.

Quantile connectedness among real estate investment trusts during COVID-19: evidence from the extreme tails of distributions

Purpose: Given the evolving market integration, this study aims to explore the connectedness of 12 real estate investment trusts (REITs) during the COVID-19 period. Design/methodology/approach: The connectedness of 12 REITs was examined by considering three sample periods: full period, COVID peak period and COVID recovery period by using the quantile vector autoregressive (VAR) approach. Findings: The findings ascertain that REIT markets are sensitive to COVID, revealing significant connectedness during each sample period. The USA and The Netherlands are the major shock transmitters;thus, these countries are relatively better options for the predictive behavior of the rest of the REIT markets. In contrast, Hong Kong and Japan are the least favorable REIT markets with higher shock-receiving potential. Research limitations/implications: The study recommends implications for real estate industry agents and investors to evaluate and anticipate the direction of return connectedness at each phase of the pandemic, such that they can incorporate those global REITs less vulnerable to unplanned crises. Apart from these implications, the study is limited to the global REIT markets and only focused on the period of COVID-19, excluding the concept of other financial and health crises. Originality/value: This study uses a novel approach of the quantile-based VAR to determine the connectedness among REITs. Furthermore, the present work is a pioneer study because it is targeting different time periods of the pandemic. Additionally, the outcomes of the study are valuable for investors, policymakers and portfolio managers to formulate future development strategies and consolidate REITs during the period of crisis. © 2023, Emerald Publishing Limited.

Volatility spillover and connectedness among REITs, NFTs, cryptocurrencies and other assets: Portfolio implications

We investigate the return and volatility spillovers among NFTs, REITs, and other major financial assets from January 2019 to November 2022, using connectedness approaches. The findings indicate that total return and volatility connectedness increased during the COVID-19 and the Russia–Ukraine war. REITs partially maintained their historical independence from shocks from other assets, while NFTs emerged as the new portfolio diversifiers. Findings suggest that investors can use REITs or a combination of NFTs, OIL, GOLD, and REITs with other assets to hedge against volatile assets during periods of financial turmoil. These findings have significant implications for heterogeneous market participants aiming to identify optimal portfolio diversifiers. © 2023 Investment Analysts Society of South Africa.

Analysis of the emergence and initial performance of REITs in India

Purpose: In 2014, real estate investment trust (REIT) emerged as a new alternative investment option in India. This research aims to give an empirical authentication of the Indian REITs performance from April 2019 to July 2022 across a range of investment variables. Design/methodology/approach: Using monthly total returns in Indian Rupee, risk-adjusted Indian REIT performance and investment portfolio characteristics are examined. Indian REITs' potential in a diversified multi-asset portfolio is analysed using the mean-variance analysis, asset allocation diagram and efficient frontier. Findings: During April 2019–July 2022, Indian REITs provided a lower return than stocks but outperformed bonds despite coronavirus disease 2019 (COVID-19) lockdowns, which hurt the traditional working from office concept. The study also examined REIT allocation to an Indian mixed-asset portfolio and the benefits of a diversified portfolio. Practical implications: Indian REITs provide a liquid, transparent alternative to direct property for investors seeking exposure to Indian real estate markets. Indian REITs gave real estate companies an extra funding source and investors an alternate asset. This paper explores Indian REITs' potential opportunities, given that domestic and foreign investors' demand for transparent property investment in India. The analysis found a positive early performance despite a challenging environment. Originality/value: This paper offers the first empirical performance validation of Indian REITs as a way to obtain exposure to commercial property in India and the REITs' role in a diversified asset portfolio. The authors' study improves investors' decision-making abilities by providing empirically validated, valuable and practicable property investing insights. © 2022, Emerald Publishing Limited.

Effects of COVID-19 on the relationship between inflation and REITs returns in South Africa

PurposeThis research aims to ascertain the extent to which the coronavirus disease 2019 (COVID-19) epidemic affected the relationship between inflation and real estate investment trusts (REITs) returns in South Africa.Design/methodology/approachThis research used the Johansen cointegration test and effective test in establishing if there is a long-run cointegrating equation between the variables. To ascertain if COVID-19 resulted in a different relationship regime between inflation and REITs returns, the sequential Bai-Perron method was used.FindingsBetween December 2013 and July 2022, there was no evidence of a long-run relationship between inflation and REITs returns, and a restricted vector autoregressive (VAR) model with a period lag for each variable best describing the relationship. Using the sequential Bai-Perron method, for one break, the results show February 2020 as a structural break in the relationship. A cointegrating equation is also found for the period before the structural break and another after the break. Interestingly, the relationship is negative before the break and a new positive relationship (regime) is confirmed after the noted break.Practical implicationsThis research helps REITs stakeholders to position themselves in light of any changes to macroeconomic activity within South Africa.Originality/valueThis is one of the first studies to test inflation relationship with REITs returns in South Africa and the effects of COVID-19 thereof. This research helps REITs stakeholders to position themselves in light of any changes to macroeconomic activity within South Africa.

Analysis of the emergence and initial performance of REITs in India

Purpose: In 2014, real estate investment trust (REIT) emerged as a new alternative investment option in India. This research aims to give an empirical authentication of the Indian REITs performance from April 2019 to July 2022 across a range of investment variables. Design/methodology/approach: Using monthly total returns in Indian Rupee, risk-adjusted Indian REIT performance and investment portfolio characteristics are examined. Indian REITs' potential in a diversified multi-asset portfolio is analysed using the mean-variance analysis, asset allocation diagram and efficient frontier. Findings: During April 2019–July 2022, Indian REITs provided a lower return than stocks but outperformed bonds despite coronavirus disease 2019 (COVID-19) lockdowns, which hurt the traditional working from office concept. The study also examined REIT allocation to an Indian mixed-asset portfolio and the benefits of a diversified portfolio. Practical implications: Indian REITs provide a liquid, transparent alternative to direct property for investors seeking exposure to Indian real estate markets. Indian REITs gave real estate companies an extra funding source and investors an alternate asset. This paper explores Indian REITs' potential opportunities, given that domestic and foreign investors' demand for transparent property investment in India. The analysis found a positive early performance despite a challenging environment. Originality/value: This paper offers the first empirical performance validation of Indian REITs as a way to obtain exposure to commercial property in India and the REITs' role in a diversified asset portfolio. The authors' study improves investors' decision-making abilities by providing empirically validated, valuable and practicable property investing insights. © 2022, Emerald Publishing Limited.

Analysis of Prospective Scenarios: A Study on Educational REITS in Brazil

Among the problems caused by the pandemic of the new coronavirus (SARS-COV-2), besides the irreparable loss of loved ones and the damage to global health caused by the disease, the restrictions imposed and the economic losses incurred by them stood out. Given the sudden changes imposed on the routine of society and companies, many businesses went bankrupt, while the other survivors needed to adapt quickly, resulting in a routine based on home office, e-commerce and distance learning. The educational sector was strongly affected by these restrictions, as well as the assets linked to it, as highlighted by the cumulative annual drop of 22% of the IFIX (index of Real Estate Investment Funds), witnessed by investors during the arrival and spread of the pandemic in Brazilian territory. Thus, the work was based on the prospective analysis of scenarios through the Momentum method, producing three possible future scenarios for the recovery of the educational REITs (Pessimistic, Optimistic, and Trend), with the help of three financial planning specialists. At the end of this study, it was possible to configure the scenarios: "The recovery of education REITs” as optimistic scenario, "Challenges of education REITs” as trend scenario, and "The crisis of education REITs” as Pessimistic scenario. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.

Pandemic Proof Property Companies

Using a sample of 163 U.S. based equity real estate investment trusts (REITs), this paper explores the consequences of COVID-19 on securitized commercial property markets. More specifically, we first map the geographic location of each firm’s investment property holdings to gauge the degree of exposure of each REIT’s asset base to the pandemic. We next demonstrate these firm level exposure metrics are directly related to the negative returns encountered by REITs in the early months of the pandemic and explore what firm specific characteristics and attributes (notably financial flexibility and financing constraints) may moderate this relation and enhance the resiliency of their equity returns. Finally, we examine the impact of the Federal Reserve’s late-March intervention designed to address and soften the economic fallout of the pandemic and ensure the liquidity and stability of capital markets. After this intervention, previously observed relations and patterns between firm specific COVID-exposure levels and operating characteristics fail to retain their prior signs and significance. In sum, the magnitude of the government’s response to the economic challenges brought about by the coronavirus pandemic is shown to outweigh the importance of firm specific factors in predicting the resiliency of REIT returns during this crisis period.

Forecasting international REITs volatility: the role of oil-price uncertainty

We forecast realized variance (RV) of Real Estate Investment Trusts for 10 leading markets and regions, derived from 5-minutes-interval intraday data, based on the information content of two alternative metrics of daily oil-price uncertainty. Based on the period of the analysis covering January 2008 to July 2020, and using variants of the popular MIDAS-RV model, augmented to include oil market uncertainties, captured by its RV (also derived from 5-minute intraday data) and implied volatility (i.e. the oil VIX), we report evidence of significant statistical and economic gains in the forecasting performance. The result is robust to the size of the forecasting samples, including that of the COVID-19 period, lag-length, nonlinearities, asymmetric effects, and forecast horizon. Our results have important implications for investors and policymakers.

Interdependence and Lead Lag Relationship Between Financial and Commodity Derivatives Market During Covid-19 Contagion †

The paper investigates the connection and interdependence of the Indian stock, commodity derivatives, and foreign exchange markets, as well as the responsiveness of these market linkages during the turbulence caused by Covid-19. The daily closing prices of BSE S&P Sensex, Nifty futures, crude oil prices, exchange rates USD, and commodity derivatives exchange indices MCX Comdex, and NCDEX Agri Index have been used. The VAR model results confirm long-term relationships among the financial, commodity derivatives, and foreign exchange markets and infer that equilibrium prevails in these markets. Further, it confirms that the interdependence of stock and commodity markets reacts to the flow of information to reach a long-run equilibrium. Granger causality confirms bidirectional causality;both stocks, commodity derivatives, and foreign exchange rates influence each other through the flow of information. This study concludes that when markets are moving towards equilibrium, bidirectional portfolio optimization and hedging will not yield benefits through diversification investments in these markets.

RISK AND RETURN OF M-REITS DURING COVID-19: EVIDENCE FROM CAPITAL ASSET PRICING MODEL (CAPM)

COVID-19 pandemic has affected real estate sectors, including Real Estate Investment Trust (REIT), as the total return of a REIT is subject to the property market’s performance. This research assesses the risk and return of Malaysian REITs (M-REITs) and All-REIT portfolios during the COVID-19 pandemic. Based on a desktop study, the researchers analysed M-REITs’ historical monthly closing price, FBM KLCI and the yield of 10-year MGS using the Capital Asset Pricing Model (CAPM). The number of observations is 24, six (6) months before and 18 months after COVID-19 hits Malaysia. The result shows that the estimated return of M-REITs using CAPM ranged from-0.1905 to 0.2391. The researchers also develop an equally weighted portfolio where all 17 M-REITs have an equal weight allocation of 0.0588 to assess the fair estimated return of the All-REIT portfolio. The findings also suggest that despite the pandemic and implementation of Movement Control Order (MCO), the average monthly log-return of M-REITs outperformed the monthly log-return of the market portfolio in April and November of 2020 as well as March and June 2021. The remaining period recorded slightly at par with FBM KLCI. Beta at less than 0.1 also indicates that M-REITs is less volatile than the market portfolio. In conclusion, CAPM suggests that M-REITs show a low-performance deviation with market portfolio during the pandemic signifying that it is a low-risk investment and shall be included in any investment portfolios. The findings of this research are vital for investors in considering M-REITs for their investment portfolio. © 2022, Construction Research Institute of Malaysia. All rights reserved.

Why do they go to the peripheries? Studying the relations between the real estate market and coworking spaces in the peripheral areas of Germany

Purpose>The study was designed to investigate the bidirectional causation between the real estate market characteristics (residential property prices/rents (including PTR), office rents) and the rise of coworking spaces (CSs) in the peripheral areas of Germany.Design/methodology/approach>Based on the desk research, the authors constructed their own database of 1,201 CSs. The authors gathered data on the residential and office prices and rents on a district level. To identify real market differences between districts with and without CSs, the authors applied the t-test for independent samples.Findings>The second-highest number of CSs were found to operate in the office market peripheries. This phenomenon should be explained by a search for lower office rents, which CSs seek. Most CSs in the peripheral areas of Germany were only recently established in tourist-oriented regions in the south and north of Germany. In this paper, the authors confirmed that the strength of peripheral CSs lies in the hybridity of their operations: for the majority of CSs, running a CS is a non-core business. The authors argue that the role of CSs is rather limited in attracting real estate investors and boosting the real estate market in the peripheral areas of Germany.Practical implications>The research shows that peripheral locations are attracting CSs to significant extent. The study shows that CSs can be part of corporate real estate or workplace strategies. As the majority of peripheral CSs are located in tourism areas, the subletting of vacant spaces could be a lucrative business model for hotels, particularly in the times of pandemics. Therefore, further research should focus on the role of tourist areas in the implementation of CSs model.Originality/value>The focus of this study (CSs in peripheral areas) is original. Additionally, applying the real estate perspective to study the location of CSs is novel as well.

Performance evaluation and volatility of Turkey REITs during COVID-19 pandemic

Purpose: This study aims to examine the performance and volatility of Turkey Real Estate Investment Trusts (Turkish REITs) as the world is adjusting to the new normal situation in every aspect of REITs' business activities. Design/methodology/approach: The prices of REITs were acquired from 26 Turkish REITs in this study, but owing to autocorrelation difficulties, 14 Turkish REITs were employed in the analysis. The ten-year long-term bond of the Turkish Government was also utilized and the period of data obtained was based on availability. The performance of Turkish REITs was evaluated using Sharpe's ratio and Treynor's ratio, and the volatility was assessed using MGARCH-BEKK. Findings: The authors found out that Turkish REITs are constantly underperforming and the REITs' returns remain highly volatile and persistent. In addition, findings showed evidence of volatility clustering and the asymmetric impact of shocks. This study further revealed the uniqueness of each of the Turkish REITs due to the lack of evidence of multicollinearity. Research limitations/implications: However, the limitation of this study is the constraint in obtaining more macro-economic variables of more than ten-years of Turkey's Government bond and the study focused mainly on Turkish REITs. Practical implications: The result suggests that since Turkish REITs are not mandatory to payout 90% of taxable earnings as dividends, high performance and an appropriate risk management approach are expected. The need for timely revealing performance of T-REITs and associated uncertainty may trigger better performance as discussed in the relationship between disclosure and performance which is recently emphasized in a recent study by Koelbl (2020). With current performance and associated uncertainty in Turkish REITs, the need to protect Turkish REITs investors is highly essential. The result further educates REIT investors that diversification benefits of REITs tend to reduce in extremely risky situations. Originality/value: This is the first study in the context of Turkish REITs that comprehensively integrated market capitalization of REITs and simultaneous evaluation of performance and the volatility of the Turkish REITs as the world adjusts to the new normal. © 2022, Emerald Publishing Limited.

Warehouse development and town planning policies in the UK

Purpose>This paper offers a review of national and local planning policies towards warehouse development within the UK.Design/methodology/approach>The first sections of the paper provide a description of the simple method of enquiry and sources of information used in the paper, outlines of the main factors driving the demand for warehousing space in the UK, and of the nature, scale and operation of modern warehouses, and a short review into the limited literature published to date, on town planning and on how it has influenced warehouse development. This is followed by an examination of some of the planning issues associated with warehouse development, two mini-case studies of how these issues are perceived and played out, a discussion of some of the issues raised in this examination and the mini-case studies.Findings>Town planning policies were traditionally seen as a restraint on the development of warehousing but while current national and local planning policies make little explicit reference to warehousing, they have often been cited in support of new warehouse development because such policies emphasise the importance of supporting economic growth and fostering the conditions in which businesses can invest and expand.Research limitations/implications>The paper has a number of limitations, not least that its source material is drawn from the Internet, and in that no primary data were collected from warehouse developers, warehouse operators, local planning officers or local authority councillors, and that the geographical coverage was limited.Originality/value>The paper offers an accessible review of the current town planning issues associated with warehouse development in the UK.

ESG, operational efficiency and operational performance: evidence from Real Estate Investment Trusts

Purpose>The purpose of the paper is to examine the relationship between the Environmental, Social and Governance (ESG) performance of Real Estate Investment Trusts (REITs) and their operational efficiency and performance.Design/methodology/approach>The authors use S&P Global (formerly SNL Real Estate) for the study analyses and examine all publicly traded REITs based in the United States over the 2019–2020 sample period. The authors regress the measures of REIT operational efficiency and operational performance on REIT ESG scores while controlling for REIT characteristics and use an ordinary least squares (OLS) estimation model with heteroscedasticity-robust standard errors. The authors also run additional regressions to examine the implications of operational efficiency on the relationship between ESG and operational performance.Findings>The authors find that REITs that perform well on the ESG scale have higher operational efficiency. In addition, the authors find that REITs with better ESG scores are associated with better operational performance. Finally, the authors find that the positive association between ESG scores and operational performance is stronger in REITs with higher operational efficiency.Practical implications>First, the adoption of ESG adds value to the REIT in terms of increased operational performance and efficiency. Second, the value addition of ESG to an REIT is driven by the better operational efficiency of some REITs over the others. Therefore, the authors’ findings suggest that REITs that currently score poorly on ESG performance would first need to focus on all the possible avenues to improve economies of scale and hence operational efficiency. This approach would help ensure that when those REITs adopt ESG initiatives, they get the most bang for their buck.Originality/value>To the best of the authors’ knowledge, this is the first study that relates operational efficiency and operational performance of REITs to their ESG scores.

Switching connectedness between real estate investment trusts, oil, and gold markets

We study price-switching spillovers between real estate investment trusts (REITs), oil, and gold markets by considering high- and low-volatility regimes as described by Markov-switching vector autoregression. Empirical results for different REIT markets indicate that gold (oil) has a lower (higher) impact on REITs in a high-volatility regime than in a low-volatility regime. Furthermore, in a low-volatility regime, gold and oil are net spillover contributors to REITs, while in a high-volatility regime, REITs are net spillover contributors. Price spillovers are time-varying, and climb during the early COVID-19 pandemic period and in early 2022.

Editorial: The aftermath of two consecutive crises: Volatility and property market mechanisms

A conceptual paper covers an exciting view of how the mortgage market would react when a new player with different credit criteria (LTV and interest rates) enters;it advances a theoretical explanation to recover mortgage coverage in those property markets most affected by the GFC. By analysing four measures of market linkages (correlation, spillover, connectedness and causality), this paper demonstrates that portfolio diversification with corporate equity and public real estate increases in the long term and permits future market risk prediction. [...]Hoesli and Malle analyse the effects of the COVID-19 pandemic on commercial real estate prices.