Listed and direct real estate investment a european analysis
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Listed and direct real estate investment: A European analysis. Steven Devaney (University of Reading), Qin Xiao (Hull University Business School) and Mark Clacy-Jones (Investment Property Databank ). Context for study. Ongoing interest in risk and return of real estate

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Listed and direct real estate investment: A European analysis

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Listed and direct real estate investment: A European analysis

Steven Devaney (University of Reading), Qin Xiao (Hull University Business School) and Mark Clacy-Jones (Investment Property Databank)

Context for study

  • Ongoing interest in risk and return of real estate

    • Investor and regulatory angles

  • Interest in the relationship between different forms of real estate

    • Substitutes or complements in a portfolio context?

  • Lots of academic and practice-based research, esp. US

  • BUT most evidence relies on valuation based measures of direct real estate returns

Previous literature

  • Early literature suggests that listed real estate1

    • Was more volatile than direct real estate

    • Had a low correlation with the direct market

    • Movements led those in direct market series

  • Second wave of studies confirmed long run links using co-integration2

    • Listed sector returns led direct market, but there may also be a feedback effect

      1 – e.g. Gyourko & Keim (1992), Myer & Webb (1993), Fisher et al. (1994), Eichholtz & Hartzell (1996)

      2 – e.g. Wang et al. (1997), Glascocket al. (2000), Tulucaet al. (2000)

Recent literature

  • With growth in data availability, recent studies are

    • Extending the spatial scope of such research3

    • Using transaction based series for the direct market

  • Oikarinenet al. (2011) and Hoesli & Oikarinen (2012)

    • Use TBIs for US real estate market

    • Confirm long run links between listed and direct RE

    • Find that listed sector still leads direct market – with predictability solely from one to other

      3 – e.g. Hoesli & Serrano (2007), Yunuset al. (2010)

What this paper does

  • Re-examines characteristics and relationships using

    • FTSE/EPRA NAREIT indices for listed real estate

    • IPD valuation based indices for direct real estate

    • IPD transaction-linked indices for direct market

  • Six European real estate markets from c.2001 to 2011

  • Includes comparisons with some US series

  • Paper:

Transaction linked indices

  • Based on sales recorded in IPD databanks. Two-step process involves1

    1. Model of price-valuation relationship2

    ln Pi= β0 + β1lnAi+ ∑ δjCi,j + ∑ λkSi,k + εi

    2. Mass appraisal of held assets to create index

  • Samples and weighting reflect institutional property market in each country

    1 – See Fisher-Geltner-Pollakowski (2007), Devaney & Martinez Diaz (2011)

    2 – P = price, A = appraisal, C = country dummies, S = sector dummies


  • Basic comparisons

    • Means, standard deviations, autocorrelations

    • Visual peaks and troughs

    • Cross-correlations – contemporaneous and lagged

  • Formal time-series techniques

    • Spectral analysis – testing for frequency of cycles

    • Cross-spectral analysis – testing for shared cycles (coherence) and whether they are synchronised (phase)

Indices – Netherlands

Timing of index peak

Less smooth, but not less lagged – why?

Modelling, recording and sample selection influences

Indices – Germany

Spectral & cross-spectral results

  • Possible cycles linked to:

    • Business cycle (4-5 years)

    • Property development cycle (8-10 years)

    • Larger urban development cycles (16-20 years +)

  • BUT only 40-48 quarters of data for most direct real estate series

  • Yet similarities between series could be detected

  • Listed sector leads in marking out shared longer cycle

Cross-spectral results

Coherence - France

Phase - all countries


  • Different series, different countries, different periods… BUT similar story

  • Listed sector returns lead direct market returns while long-run links are stronger

  • In Europe, TLIs do not consistently lead VBIs – puzzle?

  • Length of most TLIs and VBIs too short to be conclusive on cyclical behaviour

  • BUT enhancements to length and construction of TLIs may be possible

The research team thanks the European Public Real Estate Association (EPRA) for providing funding and data for this research

The views expressed are those of the authors and not necessarily of their respective organisations

Contact author: Dr Steven Devaney (

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