Research supports higher pension investment in property stocks: EPRA

Investing in listed real estate produces a performance which is very closely linked to that of the underlying property portfolio rather than the general equities market, two independent research studies commissioned by the European Public Real Estate Association (EPRA) indicate.

According to EPRA, the studies represent the most conclusive evidence to-date that institutional investors can achieve the same diversification benefits of real estate as an asset class by increasing the proportion of listed real estate in their portfolios, but with the additional benefits of greater liquidity and lower costs.

EPRA head of research Fraser Hughes said: 'These research findings are another fundamental building block in the case for listed real estate investing. They show investors can achieve both portfolio diversification and the same, or superior, performance, by investing in listed real estate as they can in the underlying bricks and mortar, but in a more transparent, liquid, and cost effective way. The research also suggests that pension funds should manage their investments in listed real estate as part of the overall real estate allocation rather than as part of the equities allocation in their multi-asset portfolios as this is clearly where they belong.'

He contended that any strategic switch of European pension fund real estate allocations into listed real estate from direct property could potentially represent a huge influx of capital, because this alternative asset class represents about 6% of all institutional investment assets, with listed property around 1% of that proportion.

Most institutions currently invest in listed real estate through their equities allocation, with the notable exception of the large Dutch pension funds, and listed real estate constitutes less than 1.5% of the market capitalisation of European share markets.

The findings were based on research carried out on Continental Europe and in the UK.

'Are REITs real estate? Evidence from international sector level data' was carried out by Martin Hoesli, professor of Real Estate Finance at the HEC Business School of the University of Geneva and Elias Oikarinen, Assistant Professor of Economics at the University of Turku in Finland. 'Commercial real estate investment: convergence and portfolio optimisation' was carried out by a team from the University of Ulster in the UK.