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A Fundamental Comparison of International Real Estate Returns

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    This study analyzes commercial real estate returns in Australia, Canada, the United Kingdom, and the United States over the period 1985-95, from the perspective of a U.S. investor. Because national indices can consist of differing property mixes, this study separately analyzes the office, retail, and warehouse sectors. Moreover, these analyses also convert total returns into their fundamental components: initial yield, growth in income, and shifts in capitalization rates. The paths of currency-adjusted income and asset values and, therefore, capitalization rates are also presented. Generally speaking, the fundamental components of retail returns across the four countries exhibit greater divergence than the office and warehouse sectors. It is interesting that the U.S. property sectors showed the worst performance, while the Australian retail and the British office and warehouse sectors were the best performers (both before and after currency adjustments). Additionally, the currency-adjusted Australian returns were adversely effected by exchange rate movements, while the British returns were positively effected. Lastly, the correlation of the quarterly percentage change in income was generally lower and less statistically significant that the correlation patterns observed among the other components of return. This might suggest that more idiosyncratic risk can be found in the real estate space markets (as proxied by income changes) than in the real estate capital markets (as proxied by the pricing of the income--that is, capitalization rates), which appear to be more globally influenced.

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    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 13 (1997)
    Issue (Month): 3 ()
    Pages: 317-348

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    Handle: RePEc:jre:issued:v:13:n:3:1997:p:317-348
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    American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323

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    Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    1. Richard Barkham & David Geltner, 1995. "Price Discovery in American and British Property Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(1), pages 21-44.
    2. Paul K. Asabere & Robert Kleiman & Carl McGowan, 1991. "The Risk-Return Attributes of International Real Estate Equities," Journal of Real Estate Research, American Real Estate Society, vol. 6(2), pages 143-152.
    3. Graeme Newell & James R. Webb, 1996. "Assessing Risk for International Real Estate Investments," Journal of Real Estate Research, American Real Estate Society, vol. 11(2), pages 103-116.
    4. Tsong-Yue Lai & Ko Wang, 1998. "Appraisal Smoothing: The Other Side of the Story," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 511-535.
    5. Joseph L. Pagliari, Jr. & James R. Webb, 1992. "Past and Future Sources of Commercial Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, vol. 7(4), pages 387-422.
    6. David Geltner, 1989. "Estimating Real Estate's Systematic Risk from Aggregate Level Appraisal-Based Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 463-481.
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