While institutional investors of the 1990s preferred passive investment vehicles with a diversified portfolio of multiple real estate sectors, recent real estate investment strategies have shifted from diversified REIT portfolios to specialised ones. In particular, specialised REITs have been validated as a superior real estate investment strategy compared with their diversified counterparts on both investment performance and interest rate risk management dimensions, according to a new analysis published in my PhD thesis and recent journal articles.
Pacific Rim specialised REITs
In the Pacific Rim region, a dominant role of specialised REITs has been seen in the US (the percentage of specialised REITs to composite REITs was 95.2%), Japan (75.2%), Australia (74.1%), Singapore (91.9%), Hong Kong (83.5%), Thailand (93.6%), Malaysia (85.6%) and South Korea (97.3%) between July 2006 to December 2018, according to my constructed database, with consideration of survival bias. The only two exceptions are New Zealand (49.2%) and Taiwan (36.0%).
The largest specialised REIT market in the region was the US (US$772.5bn in 2018; a 326% increase since 2006), ahead of Japan (#2; US$83.4bn; 388%), Australia (#3; US$64.4bn; 123%), Singapore (#4; US$54.9bn; 472%), Hong Kong (#5; US$29.9bn; 489%), Thailand (#6; US$10.1bn; 31,573%), Malaysia (#7; US$5.9bn; 1,540%), New Zealand (#8; US$4.0bn; 646%), Taiwan (#9; US$0.9bn; 144%) and South Korea (#10; US$0.9bn; 515%).
Players of Pacific Rim specialised REITs are American Tower Corporation (US; infrastructure; US$69.9bn in 2018), Prologis (US; industrial; US$37.0bn), Equinix (US; data center; US$28.3bn), Equity Residential (US; residential; US$24.3bn), Link REIT (HK; retail; US$21.4bn), Scentre Group (Australia; retail; US$14.6bn), Goodman (Australia; industrial; US$13.6bn), Nippon Building Fund (Japan; office; US$8.9bn), Dexus (Australia; office; US$7.6bn), CapitaLand Mall Trust (Singapore; retail; US$6.1bn).
In opposition, players of Pacific Rim diversified REITs are Vornado Realty Trust (US; US$11.8bn), GPT (Australia; US$6.8bn), Stockland (Australia; US$6.0bn), United Urban Investment (Japan; US$4.7bn), Orix JREIT (Japan; US$4.6bn) and Suntec REIT (Singapore; US$3.5bn). As data series for hotel, healthcare, infrastructure and data centres are too thin for analysis in all markets in the region, these sectors will be categorised as specialty REITs.
