Real estate investment in global financial centers: risk, return and contagion

Global financial activity is heavily concentrated in a small number of world cities –international financial centers. The office markets in those cities receive significant flows of investment capital. The growing specialization of activity in IFCs and innovations in real estate investment vehicles lock developer, occupier, investment, and finance markets together, creating common patterns of movement and transmitting shocks from one office market throughout the system. International real estate investment strategies that fail to recognize this common source of volatility and risk may fail to deliver the diversification benefits sought.

Principal-agent issues in asset acquisition: UK institutions and their investment agents

This paper explores principal‐agent issues in the stock selection processes of institutional property investors. Drawing upon an interview survey of fund managers and acquisition professionals, it focuses on the relationships between principals and external agents as they engage in property transactions. The research investigated the extent to which the presence of outcome‐based remuneration structures could lead to biased advice, overbidding and/or poor asset selection. It is concluded that institutional property buyers are aware of incentives for opportunistic behaviour by external agents, often have sufficient expertise to robustly evaluate agents’ advice and that these incentives are counter‐balanced by a number of important controls on potential opportunistic behaviour. There are strong counter‐incentives in the need for the agents to establish personal relationships and trust between themselves and institutional buyers, to generate repeat and related business and to preserve or generate a good reputation in the market.

Spatial concentration in institutional investment in the UK: some comparisons between the retail and office sectors

Geographic diversity is a fundamental tenet in portfolio management. Yet there is evidence from the US that institutional investors prefer to concentrate their real estate investments in favoured and specific areas as primary locations for the properties that occupy their portfolios. The little work done in the UK draws similar conclusions, but has so far focused only on the office sector; no work has examined this issue for the retail sector. This paper therefore examines the extent of real estate investment concentration in institutional Retail portfolios in the UK at two points in time; 1998 and 2003, and presents some comparisons with equivalent concentrations in the office sector. The findings indicate that retail investment correlates more closely with the UK urban hierarchy than that for offices when measured against employment, and is focused on urban areas with high populations and large population densities which have larger numbers of retail units in which to invest.