The significance and performance of US commercial property in a post-GFC context
| DOI | https://doi.org/10.1108/JPIF-02-2017-0018 |
| Pages | 575-588 |
| Date | 04 September 2017 |
| Published date | 04 September 2017 |
| Author | Muhammad Jufri Marzuki,Graeme Newell |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
The significance and performance
of US commercial property in a
post-GFC context
Muhammad Jufri Marzuki and Graeme Newell
School of Business, University of Western Sydney, Penrith, Australia
Abstract
Purpose –US commercial property is an important investment opportunity for institutional investors.
The purpose of this paper is to assess the significance, risk-adjusted performance and portfolio diversification
benefits of US commercial property (both direct property and REITs) in a mixed-asset portfolio over
1994-2016. The 2009-2016 post-GFC recovery of US commercial property is specifically highlighted.
Design/methodology/approach –Using quarterly total returns, the risk-adjusted performance and
portfolio diversification benefits of US commercial property over 1994-2016 are assessed. Efficient frontier
and asset allocation diagrams are used to assess the role of US commercialproperty in a mixed-asset portfolio.
Sub-period analysis over 2009-2016 is used to assess the post-GFC recovery of US commercial property.
Findings –US commercialproperty deliveredmixed results over 1994-2016;direct property gave the bestrisk-
adjusted performance, while US-REITs performance was hampered by high volatility. Since the GFC, both
forms of US commercialproperty have delivered stronger risk-adjusted returns with improved diversification
benefits,especially in the contextof an inter-property investmentstrategy. However, US-REITsdid not improve
their diversification benefits with thestock market over this period. This sees UScommercial property as an
important component in the US mixed-assetportfolio in the post-GFC environment, with a much stronger role
exhibited by US direct property in the post-GFC mixed-assetportfolio.
Practical implications –US commercial property emerged from the GFC as a stronger and more robust
property investment opportunity, with both the direct property and US-REITs fully recovered to their
pre-GFC performance level in 2012. The results highlight the major role of US commercial property in a US
mixed-asset portfolio in the post-GFC context. The superior risk-adjusted performance of US commercial
property sees both direct and listed US commercial property contributing significantly to the mixed-asset
portfolio throughout the entire risk-return spectrum, particularly direct property. Given the increased capital
flows into the US property market since the GFC, this is particularly important as many investors, both local
and international, use direct and listed property investment opportunities as conduits for their significant US
commercial property exposure.
Originality/value –This paper is the first published empirical research analysis that specifically assessed
the post-GFC performance and role of US commercial property in a mixed-asset portfolio. This research
enables empirically validated, more informed and practical property investment decision making by
institutional investors regarding the strategic role of US commercial property in a mixed-asset portfolio in a
post-GFC context.
Keywords REITs, Performance, Diversification, Direct property, Post-GFC, US commercial property
Paper type Research paper
Introduction
With its GDP currently standing at $18.5trillion and representing approximately one-thirdof
the global GDP (IMF,2016), the USA is the world’s largesteconomy. Being listed in the top-20
least corruptcountries (18th) (TI, 2016),the USA is also recognisedas one of the countries with
the most competitive and business-friendly environment, ranking it in third place globally;
only exceeded by Switzerland (first place) and Singapore (second place) (WEF, 2016).
The stature of the US economyis further reinforced by several of itscapital cities dominating
the top 10 ranking of leadingglobal financial centres,namely New York (No. 2), San Francisco
(No. 6), Boston (No. 7), Chicago (No. 8) and Washington DC (No. 10) (ZYG, 2016). The US
economy is expected toregister GDP growth of 1.6 per cent (real) for the whole of 2016, with
the services sector (79.5 per cent) being a significant component of the US economy
(CIA, 2016). The USA is also the home to some of the largest global institutional property
investors, including pension funds (e.g. CalPERS, CalSTRS) (PERE, 2016).
Journal of Property Investment &
Finance
Vol. 35 No. 6, 2017
pp. 575-588
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-02-2017-0018
Received 26 February 2017
Accepted 14 March 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
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575
US commercial
property in a
post-GFC
context
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