Listed real estate performance mirrors direct property after 18 months

Listed real estate investment performance mirrors direct property after 18 months, according to research by European public real estate association (EPRA) and MSCI.

The research found it takes around 18 months for an investment to shed the influence of the general equities market and start mirroring the performance of the companies’ underlying portfolio.

Medium to long-term ownership of listed real estate provides investors with much higher liquidity and lower costs than direct property investments – once the background price volatility caused by the general equities market fades, the study shows.

EPRA’s director of indices and research Ali Zaidi, said: “The matched-sample analysis adds to the evidence that European listed real estate generates the returns of direct property over the long term and confirms that listed real estate should be an integral component of investors overall property portfolio strategy.”

In their Listed and Private Real Estate: Putting the Pieces Back Together study, MSCI researchers Bert Teuben and Ian Cullen examined the relationship over time between the performance of the properties held by 19 European listed real estate companies and the volatility of their share prices.

EPRA said the research, the first time a large sample of listed company portfolios has been assessed in depth, shows that the longer a listed real estate investment is held, the more that investment delivers the performance and risk profiles of the underlying direct real estate.

Strong correlations across asset, vehicle and security, particularly over three and five-year periods, were found. EPRA said the findings suggest that long-term investors are able to use listed real estate companies as part of their overall real estate portfolio strategies.

At the highest level of aggregation, asset, vehicle and equity, headline index performance trends were broadly synchronised over the longer term, the research found. The relationship appeared to be stronger for UK companies than for their continental European peers.