Compelling Opportunities in International Real Estate
- Oct 23, 2009
Investors in U.S. REITs and other U.S. property companies should consider investing in publicly traded REITs and property companies abroad. Within developed markets globally, the aggregate equity market capitalization of this sector totals $600-plus billion, two thirds of which are outside of the United States. My team and I continue to identify very compelling investment opportunities in international markets and encourage investors to consider “going global” as part of their real estate allocations.
Real estate is largely a local business, driven by local economic and competitive factors. In the early part of this economic recovery, local demand for real estate has increased more rapidly in certain regions. Asia (excluding Japan) is experiencing a sharp rebound driven by aggressive fiscal stimulus and a healthier consumer. These economies grew GDP at an annualized rate in excess of 10 percent in the second quarter of 2009, while the U.S. economy declined 1 percent. After falling last year, real estate prices are again on the rise throughout Asia (excluding Japan).
Property companies in these regions have been the direct beneficiaries. According to the S&P Global Property Index, the publicly listed real estate markets in Singapore and Hong Kong were up 70 percent and 64 percent (year-to-date through Sept. 30), respectively. These markets have outpaced the U.S. real estate market, up 18 percent (year-to-date through Sept. 30) based upon the Dow Jones Select Real Estate Securities Index.
In addition to potentially higher returns, global real estate equity investing provides the added investor benefit of diversification. There are a host of structural, demographic and geopolitical factors that drive local real estate cycles, making the correlation of performance for real estate companies in different regions very low (for instance, Hong Kong versus the U.K. real estate market is 0.26 over the last 15 years) due to the difference in timing of these cycles. This makes regional allocations extremely important.
Regionally, we favor overweight allocations to Hong Kong and Latin America for their growth potential and Continental Europe for its attractive valuations.
Jay Leupp is president & CEO of Grubb & Ellis Alesco Global Advisors.