Listed and Direct Real Estate Investment: A European Analysis

This study investigates the extent to which returns from the listed real estate sector are related to returns in the direct real estate market for the US and for six European countries: France, Germany, the Netherlands, Sweden, Switzerland and the UK. Past research has often used valuation based indices for the direct real estate market, but this study uses transaction based indices of direct real estate prices, as well as valuation based ones, for the purpose of comparison. Returns, standard deviations, correlations and peaks and troughs are compared before the techniques of spectral and cross-spectral analysis are used for examining the cyclical attributes of the data. The main findings are that transaction based series imply a smaller difference in volatility between direct real estate and the listed sector, but movements in listed sector returns lead those in direct markets regardless of whether a transaction or valuation based series is used to represent the latter. This is consistent with the idea that price discovery occurs first in one market and then in the other. The results largely support conclusions from earlier research, but help widen the spatial scope of research in this area by exploring European markets.