New research from CBRE Global Investors, the global real estate investment management firm, highlights the benefits of well-informed diversification of real estate investment into international markets.
CBRE Global Investors’ research suggests that investors who only invest in their home market are missing the potential of markets which may offer substantially more growth, with global markets out of kilter following the most recent boom and bust period. A broad investment base also allows for a more diverse palette from which to draw returns, whilst managing any subsequent risk. But maybe most important is the fact that they miss substantial diversification potential that they cannot achieve in the cities of their home market.
With a 42-year track record, CBRE Global Investors has $37 billion in Separate Account assets under management worldwide as of Dec. 31, 2014, which represents a 10 percent increase over the previous year. The firm raised $5.4 billion and deployed $5.3 billion in Separate Account capital on behalf of its investor clients globally in 2014.
The research highlights that foreign investors gain diversification potential that they cannot achieve in the cities of their home market. Using the IPD Global City Digest, the results show that investment returns from individual cities within the same country show a striking similarity over time; a factor overlooked in other studies that focus on country level data This is especially the case when compared with returns of cities in other countries and other continents.
The correlation is not only strong between cities in the same country. Individual cities within one group of countries are more similar than when they are compared to cities outside of this group. For example, returns for cities in the Asia Pacific region are closer to each other than to returns in several other parts of the world. US markets were closer to Canadian markets than most European ones.
At first sight, EMEA looks to be an exception and that there is more diversification to be achieved within the region than outside, but this is largely attributable to the distinct behaviour of UK and German property returns.
Investors are therefore encouraged to look for global real estate exposure in order to preserve their capital by global diversification and have the possibility to enhance their returns by cycle timing and more return and risk options.
The research acknowledges the benefits of ‘on the ground’, domestic knowledge but notes that with the increasing transparency and efficiency of previously ignored markets and a matured real estate profession previously perceived risks around complex structuring, tax, currency matter and other macro-economic risks should not be neglected but can be mitigated with the right advise and strategy.
Pieter Roozenboom, Head of Global Separate Accounts at CBRE Global Investors, said: “With the increasing globalisation of investment opportunities, investors could be missing out on huge opportunities by not realising the potential of a diverse international real estate investment portfolio. With growing disposable income and retail sales, parts of the globe currently underserved with suitable real estate will increase substantially in size. CBRE Global Investors’ insight on global markets, our proprietary global risk and return models in combination with our ‘boots-on-the-ground’ knowledge of the local real estate markets, allows investors to take advantage of attractive risk premiums to deliver well balanced returns.”
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