Why specialised real estate is a better investment strategy – The Property Chronicle
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Why specialised real estate is a better investment strategy

The Professor

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.

The Professor

About Robbie Lin

Robbie Lin

Robbie Lin is a PhD in property investment and finance at the University of New South Wales. His research agenda has covered the investment performance and interest rate risk management of multiple real estate sectors in institutional investors' portfolios across the Asia-Pacific region.

Articles by Robbie Lin

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