The emergence and performance of German REITs
| Pages | 91-103 |
| Published date | 05 February 2018 |
| Date | 05 February 2018 |
| DOI | https://doi.org/10.1108/JPIF-01-2017-0001 |
| Author | Graeme Newell,Muhammad Jufri Marzuki |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
The emergence and performance
of German REITs
Graeme Newell
Department of Economics and Finance,
University of Western Sydney, Penrith, Australia, and
Muhammad Jufri Marzuki
School of Business, University of Western Sydney, Penrith, Australia
Abstract
Purpose –Germanreal estate investment trusts(REITs) are a small but importantproperty investment vehicle
in the EuropeanREIT landscape, offeringGerman commercial propertyinvestment exposurein a liquid format,
compared to the more property development-focused German listed property companies and the popular
German open-endedproperty funds. The purposeof this paper is to assess the emergence of theGerman REIT
market and the risk-adjusted performance and portfolio diversification benefits of German REITs in a
mixed-asset portfolio over 2007-2015. The post-global financial crisis (GFC) recovery of German REITs is
highlighted. Enabling strategies forthe ongoing development of the GermanREIT market are also identified.
Design/methodology/approach –Using monthly total returns, the risk-adjusted performance and
portfolio diversification benefits of German REITs over 2007-2015 are assessed. Efficient frontier and
asset allocation diagrams are used to assess the role of German REITs (and German property companies) in a
mixed-asset portfolio. Sub-period analysis is used to assess the post-GFC recovery of German REITs.
Findings –German REITs delivered lesser risk-adjusted returns compared to German stocks over 2007-2015,
with limited portfolio diversification benefits. However, since the GFC, German REITs have delivered strong
risk-adjusted returns, but with continued limited portfolio diversification benefits with German stocks. German
REITs also out-performed German property companies. Importantly, this sees German REITs as strongly
contributing to the German mixed-asset portfolio across the portfolio risk spectrum in the post-GFC environment.
Practical implications –German REITs are a small but important market at a local, European and global
REIT level. The results highlight the major role of German REITs in a German mixed-asset portfolio in the
post-GFC context. The strong risk-adjusted performance of German REITs compared to German stocks sees
German REITs contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is
particularly important, as many investors (e.g. small pension funds) use German REITs (and German listed
property companies) to obtain their German property exposure in a liquid format, as well as the increased
importance of blended property portfolios of listed property and direct property.
Originality/value –This paper is the first published empirical research analysis of the risk-adjusted
performance of German REITs, and the role of German REITs as a listed property vehicle in a mixed-asset
portfolio. This research enables empirically validated, more informed and practical property investment
decision making regarding the strategic role of German REITs in a portfolio.
Keywords Portfolio investment, Portfolio diversification, Post-GFC recovery, Risk-adjusted returns,
Asset allocation, German REITs
Paper type Research paper
Introduction
Institutional investors in Germany have a range of property investment vehicles to achieve
their German property exposure. This includes direct property, club deals, open-ended
funds, closed-end funds, Spezialfonds and listed property securities (including property
companies and German real estate investment trusts (REITs)). German open-ended property
funds have been a particularly popular way for investors to achieve their property exposure.
REITs in Europe have taken on increased significance in recent years; this includes the
UK, France, the Netherlands and Belgium, with REIT markets also recently established in
Spain and Northern Ireland. This sees REITs now in ten European countries, with European
REITs accounting for 11 per cent of the global REIT market cap (EPRA, 2016b).
Importantly, Germany also established a REIT market in 2007, adding to the already
significant role of German listed property companies in the listed property securities space.
Journal of Property Investment &
Finance
Vol. 36 No. 1, 2018
pp. 91-103
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-01-2017-0001
Received 1 January 2017
Revised 24 April 2017
Accepted 14 June 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
91
Emergence and
performance of
German REITs
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