The emergence of Spanish REITs
| Pages | 495-508 |
| DOI | https://doi.org/10.1108/JPIF-05-2018-0032 |
| Published date | 06 July 2018 |
| Date | 06 July 2018 |
| Author | Muhammad Jufri Marzuki,Graeme Newell |
| Subject Matter | Real estate & property,Property valuation & finance |
The emergence of Spanish REITs
Muhammad Jufri Marzuki
School of Business, University of Western Sydney, Penrith, Australia, and
Graeme Newell
Department of Economics and Finance,
School of Business, University of Western Sydney, Penrith, Australia
Abstract
Purpose –Spanish real estate investment trusts (REITs) emerged as an important and rapidly expanding
property investment vehicle, against the backdrop of improving Spain macro-economic fundamentals and
commercial propertymarket. This sees Spanish REITs beingthe 3rd largest REIT market in Europe, offering
accessto importantIberian and European propertyassets, with the added benefits of transparency,governance
and liquidity. Thepurpose of this paper is to assess the significance, risk-adjusted performance and portfolio
diversificationbenefits of Spanish REITs in a mixed-asset portfolio over August 2014–February 2018.
Design/methodology/approach –Using monthly total returns, the risk-adjusted performance and
portfolio diversification potential of Spanish REITs over August 2014–February 2018 are assessed. Asset
allocation diagrams are used to assess the role of Spanish REITs in a mixed-asset portfolio.
Findings –Spanish REITs delivered strong risk-adjusted returns compared to stocks over August
2014–February 2018, but with limited portfolio diversification benefits. Compared to bonds, Spanish REITs
offered competitive risk-adjusted returns and excellent diversification benefits. Importantly, this sees Spanish
REITs as strongly contributing to the Spanish mixed-asset portfolio across the portfolio risk spectrum.
Practical implications –The 2012 Spanish REIT regulatory changes have been pivotal in providing a
supportive environment for Spanish REITs’growth. Spanish REITs are now a significant market in a
European context. The results highlight the major role of Spanish REITs in a Spanish mixed-asset portfolio.
The strong risk-adjusted performance of Spanish REITs compared to stocks sees Spanish REITs
contributing to the mixed-asset portfolio across the portfolio risk spectrum. This is particularly important, as
an increasing number of investors have utilised Spanish REITs to obtain their property exposure in a liquid
format in recent years.
Originality/value –This paper is the first published empirical research analysis of the risk-adjusted
performance of Spanish REITs, and the role of Spanish REITs in a mixed-asset portfolio. This research
enables empirically validated, more informed and practical property investment decision-making regarding
the strategic role of Spanish REITs in a portfolio.
Keywords Spain, REITs, Portfolio diversification, Risk-adjusted returns, Asset allocation, SOCIMIs
Paper type Research paper
Introduction
The establishment of the real estate investment trust (REIT) investment format is one of the
significantdevelopments in the property investment realm in Europe, withthe proliferation of
REITs in various European jurisdictions over the last decade (e.g. France (2003), Germany
(2007), UK (2007), Italy (2007), Finland (2009), Spain (2009), Ireland (2013)) (EPRA, 2017a).
Since many of theseEuropean REIT markets were established at the heightof the 2007–2009
global financialcrises (GFC), at the time when the global property marketwas under extreme
pressure, they did not receive a sufficient and encouraging response from the investment
community. However, rapid growth has been recorded in both the number of market
participants as well as market capitalisation of REITs in the past five years. There are now
in excess of 200 REITs in operation across 13 European REIT markets, with the European
REITs market value standing at $224bn in 2017 (EPRA, 2017b). This sees the European
REITs accountingfor 13 per cent of the size ofthe global REIT universe. Figure1 presents the
significant growth in market capitalisation of various European REIT markets over August
2014–February 2018.
The Spanish REIT market (officially known as Sociedades Anonimas Cotizadas de
Inversion Inmobiliaria (SOCIMI)) is an importantand rapidly growing REITmarket in Europe.
Journal of Property Investment &
Finance
Vol. 36 No. 5, 2018
pp. 495-508
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-05-2018-0032
Received 4 May 2018
Accepted 23 May 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
495
Spanish REITs
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