Herding in the UK Real Estate Market

2015 ◽  
Author(s):  
Stephen Lee
Keyword(s):  
Real Estate ◽  
Real Estate Market ◽  
The Uk

scholarly journals What sells in a crisis? Determinants of sale probability over a cycle and through a crash

2017 ◽  
Vol 35 (6) ◽  
pp. 619-637 ◽  
Author(s):  
David Scofield ◽  
Steven Devaney
Keyword(s):  
Real Estate ◽  
Sample Selection ◽  
Sampling Technique ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Content Type ◽  
Asset Selection ◽  
The Uk ◽  
Real Estate Cycle ◽  
Over Time

Purpose The purpose of this paper is to understand what affects the liquidity of individual commercial real estate assets over the course of the economic cycle by exploring a range of variables and a number of time periods to identify key determinants of sale probability. Design/methodology/approach Analyzing 12,000 UK commercial real estate transactions (2003 to 2013) the authors use an innovative sampling technique akin to a perpetual inventory approach to generate a sample of held assets for each 12 month interval. Next, the authors use probit models to test how market, owner and property factors affect sale probability in different market environments. Findings The types of properties that are most likely to sell changes between strong and weak markets. Office and retail assets were more likely to sell than industrial both overall and in better market conditions, but were less likely to sell than industrial properties during the downturn from mid-2007 to mid-2009. Assets located in the City of London more likely to sell in both strong and weak markets. The behavior of different groups of owners changed over time, and this indicates that the type of owner might have implications for the liquidity of individual assets over and above their physical and locational attributes. Practical implications Variation in sale probability over time and across assets has implications for real estate investment management both in terms of asset selection and the ability to rebalance portfolios over the course of the cycle. Results also suggest that sample selection may be an issue for commercial real estate price indices around the globe and imply that indices based on a limited group of owners/sellers might be susceptible to further biases when tracking market performance through time. Originality/value The study differs from the existing literature on sale probability as the authors analyzed samples of transactions drawn from all investor types, a significant advantage over studies based on data restricted to samples of domestic institutional investors. As well, information on country of origin for buyers and sellers allows us to explore the influence of foreign ownership on the probability of sale. Finally, the authors not only analyze all transactions together, but the authors also look at transactions in five distinct periods that correspond with different phases of the UK commercial real estate cycle. This paper considers the UK real estate market, but it is likely that many of the findings hold for other major commercial real estate markets.

scholarly journals Convergence in the UK direct real estate market

2017 ◽  
Vol 35 (4) ◽  
pp. 382-396
Author(s):  
Stephen Lee
Keyword(s):  
Real Estate ◽  
Global Financial Crisis ◽  
Common Factor ◽  
Principal Component ◽  
Spillover Effects ◽  
Real Estate Market ◽  
Sample Period ◽  
Market Segments ◽  
Content Type ◽  
The Uk

Purpose The purpose of this paper is to empirically examine the issue of convergence in the monthly returns, rental growth and yields for ten market segments in the UK direct real estate market, using monthly data over the period from January 1987 to December 2014. Design/methodology/approach The methodology used to determine convergence is principal component analysis as it provides an assessment of the extent to which the variance of the market segments can be represented by a single common factor, explaining their long-run behaviour, and the degree of independence between the market segments. Findings The results suggest that there is strong evidence of convergence over the entire sample period in relation to monthly returns and yields but less evidence of convergence in rental growth, which confirms the findings in previous studies in international markets. Practical implications The evidence also suggests that convergence has increased over the sample period and that convergence is period specific and was particularly strong during and after the period of the Global Financial Crisis, which implies that the UK direct real estate market is largely integrated and as a consequence the extent of diversification potential in the market is still severely limited. Social implications The convergence in returns has crucial implications for investors as it leaves investors exposed to the same structural shocks and so magnifies the importance of volatility spillover effects, limits their ability to create well-diversified portfolios and make it more difficult for fund managers to outperform the market. Originality/value This is the first paper to examine the convergence in the UK direct real estate market.

scholarly journals THE CHANGING NATURE OF TRANSACTIONS ACTIVITY AND LIQUIDITY IN UK COMMERCIAL PROPERTY

2016 ◽  
Vol 20 (4) ◽  
pp. 384-396 ◽  
Author(s):  
Colin JONES ◽  
Nicola LIVINGSTONE ◽  
Neil DUNSE
Keyword(s):  
Real Estate ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Active Management ◽  
Urban Change ◽  
Commercial Property ◽  
Causality Tests ◽  
One Year ◽  
The Uk

This paper examines changing transactions activity and liquidity over thirty years in the UK. It reviews the multi-dimensional concept of liquidity analysis and demonstrates that it is not just a function of the time necessary to sell an asset, a typical real estate perspective. Instead liquidity is defined in terms of transactions activity. The paper then hypothesises that urban change and an increased information base has contributed to a more active management of real estate portfolios and increased liquidity. Superimposed on this long term trend it is also hypothesised that property cycles create rise and falls in liquidity. The empirical core quantifies the changing nature of liquidity and transactions activity over thirty years from 1981 based on the IPD database. It confirms the hypothesised substantial rise in liquidity but increasing variability in the level of transactions activity from one year to the next queries the cyclical liquidity hypothesis. This is supported by causality tests. Over the last two decades a short term opportunity driven real estate investment culture appears to have emerged stimulated by the increased churn of properties, partly the consequence of the pace of urban change. It has brought greater volatility to the commercial real estate market.

Factors influencing the propensity of real estate investors in the UK to employ property derivatives

2019 ◽  
Vol 37 (2) ◽  
pp. 194-214 ◽  
Author(s):  
Alexander T. Hanisch
Keyword(s):  
Real Estate ◽  
Explanatory Power ◽  
Real Estate Market ◽  
Theory And Practice ◽  
Original Form ◽  
Content Type ◽  
Research Results ◽  
Asset Class ◽  
The Uk ◽  
Derivatives Markets

PurposeReal estate is the last major asset class without liquid derivatives markets. The reasons for that are not fully known or understood. Therefore, the purpose of this paper is to better understand the main factors that influence the propensity of commercial real estate investors in the UK to employ property derivatives.Design/methodology/approachThe research methodology that was chosen for this research is grounded theory which, in its original form, goes back to Glaser and Strauss (1967). A total of 43 interviews were conducted with 46 real estate professionals in the UK from property investment management firms (investing directly or indirectly in real estate), multi-asset management firms, real estate investment trusts, banks, and brokerage and advisory firms, among others.FindingsThe research results show 29 factors that influence the propensity of direct and indirect real estate investors in the UK to employ property derivatives. Out of the 29 factors, the current research identified 12 factors with high-explanatory power, 6 with a contributing role and 11 with low explanatory power. Moreover, factors previously discussed in the literature are tested and assessed as to their explanatory power. The focus of this paper is on those factors with high-explanatory power. From the research data, three main reasons have been identified as the sources of investor reluctance to trade in property derivatives. The first and main reason is related to a mismatch between motivations of property investment managers and what can be achieved with the instruments. The second reason, which ties in with the first one, is a general misunderstanding as to the right pricing technique of property derivatives. Finally, the third reason is a general lack of hedging demand from the investor base owing to the long investment horizons through market cycles.Research limitations/implicationsThe research contributes to the literature on property derivatives in various ways. First, it extends the literature on market hurdles in property derivatives markets by testing and extending the hurdles that were proposed previously. Second, the research shows that the existing pricing models need to be extended in order to account for the risk perception of practitioners and their concerns with regard to liquidity levels.Practical implicationsFor both theory and practice, the research has shown some limitations in using property derivatives for purposes such as creating index exposure or hedging. Another contribution, in this case to practice, is that this study provides a clearer picture as to the reasons that keep property investment managers away from using property derivatives.Originality/valueThe research results indicate that liquidityper seis not a universal remedy for the problems in the market. In addition to the need for improving the understanding of the pricing mechanism, practitioners should give more thought to the notion of real estate market risk and the commensurate returns that can reasonably be expected when they take or reduce it. This implies that property index futures currently do not price like those on any other investable asset class.

Forward Curve Risk Factors Analysis in the UK Real Estate Market

2015 ◽  
Vol 53 (4) ◽  
pp. 494-526 ◽  
Author(s):  
Pierre-Arnaud Drouhin ◽  
Arnaud Simon ◽  
Yasmine Essafi
Keyword(s):  
Risk Factors ◽  
Real Estate ◽  
Real Estate Market ◽  
Factors Analysis ◽  
The Uk

scholarly journals Real estate fund active management

2015 ◽  
Vol 33 (6) ◽  
pp. 494-516 ◽  
Author(s):  
Stephen Lee ◽  
Giacomo Morri
Keyword(s):  
Real Estate ◽  
Tracking Error ◽  
Real Estate Market ◽  
Active Management ◽  
Sample Period ◽  
Management Styles ◽  
Tracking Errors ◽  
Content Type ◽  
Management Fees ◽  
The Uk

Purpose – The purpose of this paper is to analyse the performance of UK property funds using the dual sources of active management, Active Share and tracking error, to distinguish between the types of active management styles used by funds. Design/methodology/approach – The authors use data on 38 UK real estate funds and classify them into five active management categories using the dual sources of active management, Active Share and tracking error. Then, the authors compare their return performance against Active Share, tracking error, fund size and leverage. Therefore the paper is able to answer two of the fundamental questions of investment: does active management add value and what form of active management, stock selection or factor risk, is better at adding value to the fund? Findings – There are three main conclusions. First, the approach of Cremers and Petajisto (2009) and Petajisto (2010) is able to classify real estate funds in the UK on their management activity into categories that makes intuitive sense and seem stable over time. Second, balanced funds show relatively low Active Shares and particularly low tracking errors, due to the benefits of property-type diversification. In contrast, specialists funds display higher Active Shares and both low and high tracking errors depending on their stock-picking approach; diversified or concentrated. Third, an analysis over different time periods confirmed that funds in the sample essentially remained in the same categories within the sample period, even during markedly different market return periods. This implies that investors need to constantly monitor changes in the market and switch between fund management styles, if at all possible. Research limitations/implications – The analysis was only based on 38 funds with complete data over the sample period and the relationship between fees and active management was not examined, even though ultimately investors are concerned with returns after management fee. It would be instructive therefore if the number of funds and time period was expanded to see if the results are robust and to see whether management fees outweigh the benefits of active manager. Practical implications – The findings should enable investors to make a more informed investment decisions in the future. Originality/value – To the best of the author’s knowledge this is the first paper to apply the dual sources of active management, Active Share and tracking error, in the UK real estate market.

Transparency in the German real estate market

2005 ◽  
Vol 23 (1) ◽  
pp. 90-108 ◽  
Author(s):  
Karl‐Werner Schulte ◽  
Nico Rottke ◽  
Christoph Pitschke
Keyword(s):  
Real Estate ◽  
Real Estate Market ◽  
International Standards ◽  
Real Estate Industry ◽  
Content Type ◽  
Real Estate Markets ◽  
Current State ◽  
The Usa ◽  
Private And Public ◽  
The Uk

PurposeGerman real estate markets used to show little transparency in the past. This has changed over the last 15 years. The purpose of this study therefore is to examine the current state of transparency.Design/methodology/approachThe study investigates and discusses the concept of transparency in general, availability of private and public market data, major real estate investment products, performance measurement, changes in the regulatory environment and the emergence of organizations and publications. The findings of this study are obtained in a comparative manner: The transparency status of the 1990s in the different areas researched is compared to the current German and other international standards. The authors describe the relatively opaque German real estate market as it was at the beginning of the 1990s and show how it has improved to date.FindingsThe results show that transparency in the German real estate market has noticeably improved in all researched areas. But still, compared with the USA or the UK, the German real estate industry and real estate market still lack transparency and are characterized by information asymmetries and opaqueness.Originality/valueThe results indicate that the German real estate market and industry become more mature and bit by bit converge with their US and UK archetype.

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