Real estate portfolio strategy and product innovation in Europe
| Published date | 07 March 2008 |
| Date | 07 March 2008 |
| DOI | https://doi.org/10.1108/14635780810857908 |
| Pages | 162-176 |
| Author | Martin Hoesli,Jon Lekander |
PRACTICE BRIEFING
Real estate portfolio strategy and
product innovation in Europe
Martin Hoesli
University of Geneva, Geneva, Switzerland, and
Jon Lekander
Aberdeen Property Investors, Stockholm, Sweden
Abstract
Purpose – This paper aims to review major changes on real estate markets in Europe and to analyse
the impacts of such changes.
Design/methodology/approach – The paper provides an overview of the variousequity real estate
investment vehicles available to investors, with particular focus on the pros and cons of each type of
vehicle. The paper also includes an analysis of the impacts of product innovation on real estate
markets and on portfolio strategy.
Findings – The changes on real estate markets have led to considerable amounts of capital being
allocated to the asset class. Portfolio strategies should be substantially more flexible.
Research limitations/implications – As many of the new products have been created in bullish
real estate markets, it is important to assess the impacts of a market downturn on portfolio
performance.
Practical implications – A good understanding of available products with their pros and cons is
necessary for a sound investment strategy.
Originality/value – The paper is one of the very few papers that discuss the major institutional
changes that have occurred on European real estate markets.
Keywords Real estate, Portfolio investment,Investments, Assets management
Paper type General review
1. Introduction
The benefits of including real estate in a mixed-asset portfolio have been well
documented (e.g. Hoesli and MacGregor, 2000, chapter 10). These include risk
diversification and liability matching characteristics. Property returns are weakly
correlated with stock returns, with the diversification benefits also largely stemming
from property’s low (often negative) correlation to bonds (Hoesli et al., 2004). More
specifically, the diversification gains originate in the real characteristics of property in
general, and the inter-temporal behaviour of the actual and expected income stream to
property in particular. Property is subject to the same dynamics as are bonds in terms
of interest rate movements (that is when interest rates decrease, the property yield also
tends to decrease), but the late cyclicality of the income stream tends to have a larger
impact on the overall return to property. This effect on the income stream usually
occurs late in the business cycle, at a point when interest rates tend to increase
resulting in a weaker bond market performance.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
JPIF
26,2
162
Received July 2005
Accepted November 2006
Journal of Property Investment &
Finance
Vol. 26 No. 2, 2008
pp. 162-176
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780810857908
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