MSCI has launched an index that tracks direct property assets globally, at a time when investors are trying to predict how real estate markets are going to behave in the coming months.

The MSCI Global Quarterly Property Index (GQPI) is the first to show property-level performance of quarterly-valued assets across the major international markets, and could prove useful as investors face a period of uncertainty.

It comes 10 years after MSCI acquired UK-based property specialist IPD as part of efforts to move beyond listed markets to cover private asset classes like unlisted real estate.

“It’s been a long time coming,” said Will Robson, global head of real estate solutions research at MSCI, explaining that the launch of the index had been dependent on sufficient growth in quarterly valuations around the world.

Of the 26 countries covered by the index, 17 national markets today provide quarterly-valued data. MSCI uses regional and global aggregated data to provide the full global index, tracking more than 20,000 property investments overall.

Robson said there was a need to strike a balance “between getting as many properties as possible versus getting a consistent methodology”.

The launch could prove useful timing for real estate investors who are facing a confluence of external factors that could influence markets.

The index, which shows performance dating back to 2007, has captured the extent to which global real estate markets recovered as economies emerged from COVID-19 lockdowns. The index posted a 17.8% return for the 12-month period ending in the first quarter of 2022.

Quarterly returns for the first three months of 2022 were still relatively strong, at 4.4%, but performance is expected to moderate in the coming months, as high inflation, economic weakness and ongoing geopolitical tensions weigh on markets.

“With this sort of economic backdrop, potentially we might see [returns] starting to ease further,” Robson said. “Once that starts happening, investors and our clients are keen to be tracking markets on a more frequent basis. So [the launch of the index] is good timing from that perspective.” 

Last year, MSCI acquired Real Capital Analytics (RCA), which provides global real estate transaction data and runs transaction-based indices.

Robson said there was an opportunity for valuation and transaction-based indices to complement each other and to provide greater understanding of market trends when combined.

“Because of differences in samples and methodologies, [they] can be telling slightly different stories at certain points in the market,” said Robson. “Putting them together can often tell you a bit more about what’s going on than looking at them independently from one another.”

Valuation indices are often thought to lag the market (as valuations catch up with transaction prices in the market) and to suffer from a smoothing effect that understates the true volatility in the market.

“There’s usually a perception that transaction-based data is the most ‘real’, because it’s reflecting actual pricing, rather than a valuation that is deemed to suffer from some kind of smoothing bias,” Robson said. But, he added, transaction indices can also understate trends, because they only report on assets that are being traded.

Valuation indices, for instance, can be better placed to capture corrections in certain parts of the market where there are no or few transactions taking place. The retail sector is an obvious sector, where valuations have come down in recent years while transactions have remained limited.

“With pricing indexes, they’re reflecting the price performance of the things that happen to transact in any given period, whereas [with] valuation-based indexes… everything in the portfolio gets valued – so even the problematic retail over the last few years that might not have transacted but is being held,” Robson said.

Meanwhile, the RCA transaction indices have other advantages. “The database is refreshed on a daily basis,” Robson said. “So as transactions happen, it flows into the database, and you can look at that data on a deal-by-deal basis. So it’s very granular, whereas the valuation data, because of the confidentiality around the individual assets… is always aggregated.”

MSCI has also launched a European version of the global quarterly index, tracking more than 12,000 property investments in 20 countries.

Rene Veerman, global head of real assets at MSCI, said: “Until now, investors only had access to quarterly property-level indexes for a few of the larger, more transparent markets, but the ongoing economic environment and market conditions as we come out of the pandemic have made clear the importance of timely property-level indicators to understand how real estate markets are responding.”

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