International investment, ownership and risk in the City of London office market: an analysis of trends 1972-1997

Office returns in the City of London are more volatile than in other UK markets. This volatility may reflect fluctuations in capital flows associated with changing patterns of ownership and the growing linkage between real estate and financial markets in the City. Using current and historical data, patterns of ownership in the City are investigated. They reveal that overseas ownership has grown markedly since 1985, that owners are predominantly FIRE sector firms and that there are strong links between ownership and occupation. This raises concerns about future volatility and systemic risk.

Islamic mutual funds' financial performance and international investment style: evidence from 20 countries

We pursue the first large-scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias-adjusted data set, we analyse the financial performance and investment style of 265 Islamic equity funds from 20 countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three-level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds’ investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.

Gauging the investment potential of international real estate markets

Investing in real estate markets overseas means venturing into the unknown, where you meet unfamiliar political and economic environments, unstable currencies, strange cultures and languages, and so although the advantages of international diversification might appear attractive, the risks of international investment must not be overlooked. However, capital markets are becoming global markets, and commercial real estate markets are no exception, accordingly despite the difficulties posed by venturing overseas no investor can overlook the potential international investment holds out. Thus, what strategies are appropriate for capitalising on this potential? Three issues must be considered: (1) the potential of the countries real estate market in general; (2) the potential of the individual market sectors; and (3) the investment process itself. Although each step in foreign real estate investment is critical, the initial assessment of opportunities is especially important. Various methods can be used to achieve this but a formal and systematic analysis of aggregate market potential should prove particularly fruitful. The work reported here, therefore, develops and illustrates such a methodology for the over 50 international real estate markets.

The impact of country risk on international real estate returns

Commercial real estate investors have well-established methods to assess the risks of a property investment in their home country. However, when the investment decision is overseas another dimension of uncertainty overlays the analysis. This additional dimension, typically called country risk, encompasses the uncertainty of achieving expected financial results solely due to factors relating to the investment’s location in another country. However, very little has been done to examine the effects of country risk on international real estate returns, even though in international investment decisions considerations of country risk dominate asset investment decisions. This study extends the literature on international real estate diversification by empirically estimating the impact of country risk, as measured by Euromoney, on the direct real estate returns of 15 countries over the period 1998-2004, using a pooled regression analysis approach. The results suggest that country risk data may help investor’s in their international real estate decisions since the country risk data shows a significant and consistent impact on real estate return performance.

Outward investments and productivity: evidence from European regions

Outward investments and productivity: evidence from European regions, Regional Studies. Using a novel data set on international investment projects, this paper builds measures of outward foreign direct investments (FDIs) for 262 regions of the European Union. This allows as estimation to be made of regressions of productivity growth over the 2007–11 period as a function of the number of FDIs. The number of outward FDIs in manufacturing activities is negatively associated with productivity growth in the home region, but investments in sales, distribution and marketing are associated with a boost in local productivity. This is driven especially by investments towards non-European Union locations. This evidence qualifies the fear of hollowing-out as a consequence of outward investments

Integration and segmentation in European investment services markets: assessing the implications for international real estate investment

This paper analyses developments in the growth and configuration of the institutional savings markets within the European Union. The paper discusses the changing socio-economic context in which investment services within the EU are being delivered. The is followed by an examination of drivers of market integration such as the growth and consolidation of the fund management industry, the demographic and fiscal pressures for reform of pensions markets and the process and effects of the deregulation of investment services markets. There is a review of outstanding sources of market segmentation. The projections for future growth in pensions are outlined and implications for real estate investment assessed. It is concluded that, although numerous imponderables render reliable quantitative projections problematic, growth and restructuring of the institutional savings market is likely to increase cross-border capital flows to real estate markets.

International office investment in global cities: the production of financial space and systemic risk

The paper explores the relationships between UK commercial real estate and regional economic development as a foundation for the analysis of the role of real estate investment in local economic development. Linkages between economic growth, development, real estate performance and investment allocations are documented. Long-run regional property performance is not the product of long-run economic growth, and weakly related to indicators of long-run supply and demand. Changes in regional portfolio weights seem driven by neither market performance nor underlying fundamentals. In the short run, regional investment shifts show no clear leads or lags with market performance.

Destination UK: international property investment and the role of taxation

This research examines whether or not foreign property investors enjoy tax and other advantages over their UK counterparts and how, if such advantages exists, UK quoted property companies can redress the balance. Current issues such as lack of liquidity, inequalities amongst asset classes, and differences in tax burden are examined in detail. The report will be of interest to property investment specialists, valuers, fund managers, institutional investors and their advisers.

Investment in preventing and preparing for biological emergencies and disasters: social and economic costs of disasters versus costs of surveillance and response preparedness

Biological emergencies such as the appearance of an exotic transboundary or emerging disease can become disasters. The question that faces Veterinary Services in developing countries is how to balance resources dedicated to active insurance measures, such as border control, surveillance, working with the governments of developing countries, and investing in improving veterinary knowledge and tools, with passive measures, such as contingency funds and vaccine banks. There is strong evidence that the animal health situation in developed countries has improved and is relatively stable. In addition, through trade with other countries, developing countries are becoming part of the international animal health system, the status of which is improving, though with occasional setbacks. However, despite these improvements, the risk of a possible biological disaster still remains, and has increased in recent times because of the threat of bioterrorism. This paper suggests that a model that combines decision tree analysis with epidemiology is required to identify critical points in food chains that should be strengthened to reduce the risk of emergencies and prevent emergencies from becoming disasters.

International financial centres, office market rents and volatility

Despite continuing developments in information technology and the growing economic significance of the emerging Eastern European, South American and Asian economies, international financial activity remains strongly concentrated in a relatively small number of international financial centres. That concentration of financial activity requires a critical mass of office occupation and creates demand for high specification, high cost space. The demand for that space is increasingly linked to the fortunes of global capital markets. That linkage has been emphasised by developments in real estate markets, notably the development of global real estate investment, innovation in property investment vehicles and the growth of debt securitisation. The resultant interlinking of occupier, asset, debt and development markets within and across global financial centres is a source of potential volatility and risk. The paper sets out a broad conceptual model of the linkages and their implications for systemic market risk and presents preliminary empirical results that provide support for the model proposed.

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.

Hedging private international real estate

The performance of an international real estate investment can be critically affected by currency fluctuations. While survey work suggests large international investors with multi-asset portfolios tend to hedge their overall currency exposure at portfolio level, smaller and specialist investors are more likely to hedge individual investments and face considerable specific risk. This presents particular problems in direct real estate investment due to the lengthy holding period. Prior research investigating the issue relies on ex post portfolio measure, understating the risk faced. This paper examines individual risk using a forward-looking simulation approach to model uncertain cashflow. The results suggest that a US investor can greatly reduce the downside currency risk inherent in UK real estate by using a swap structure – but at the expense of dampening upside potential.